This paper reconsiders the role and effectiveness of capital controls for emerging market economies. While it is best to minimize the risk and severity of crises by reforming the international and regional financial architecture and by strengthening domestic policy and institutional frameworks, controls on short-term capital flows can have a role to play in managing the transition process of financial integration. Empirical evidence, however, generally challenges belief in the effectiveness of capital controls, particularly when they are introduced on outflows at a time of crisis. In this regard, Malaysia’s recent experience with outflow controls is noteworthy, as the controls appear to have achieved the objective of securing monetary independence under a fixed exchange rate, allowing interest rates to decline substantially during a period of output contraction. We argue that this generally salutary effect of the Malaysian control measures was mainly due to the fact that the controls were explicitly introduced as time-bound measures, supported by a sound macroeconomic policy framework, bank and corporate restructuring, a currency widely perceived to be undervalued, and credible supervision and implementation. This experience suggests that use of capital outflow controls has a place in the arsenal of policy instruments, to be used within the context of a policy framework and circumstances specific to the country concerned.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number
473.
Length: 30 pages Date of creation: May 2003 Date of revision: Handle: RePEc:eab:macroe:473
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200 Web page: http://www.eaber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Sam Engele).
Find related papers by JEL classification: F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F15 - International Economics - - Trade - - - Economic Integration F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Ethan Kaplan & Dani Rodrik, 2002.
"Did the Malaysian Capital Controls Work?,"
NBER Chapters,
in: Preventing Currency Crises in Emerging Markets, pages 393-440
National Bureau of Economic Research, Inc.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)