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Capital Controls and International Trade: An Industry Financial Vulnerability Perspective

Author

Listed:
  • Kevin Lai

    (Federal Reserve Bank of New York)

  • Tao Wang

    (Swarthmore College)

  • David Xu

    (Peterson Institute for International Economics)

Abstract

Capital control policies have consequences for economic growth and international trade. Using data on 99 countries from 1995 to 2014, we find evidence that the effect of capital controls on trade vary across industries that have differing levels of external financing and asset tangibility. For exporting countries that tighten capital controls, industries that rely more heavily on external financing experience a larger decline in exports, while industries that possess more tangible assets experience a smaller decline in exports. For importing countries, tighter capital controls imply a decrease in trade, and this effect is uniform across all industries. The pattern with respect to external financing persists after accounting for availability of domestic credit and differences in industry shares and is predominantly found in countries with low levels of financial development. On the other hand, the varying effect related to asset tangibility is mostly absorbed by the domestic credit market.

Suggested Citation

  • Kevin Lai & Tao Wang & David Xu, 2019. "Capital Controls and International Trade: An Industry Financial Vulnerability Perspective," Working Paper Series WP19-20, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp19-20
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital controls; Financial vulnerability; International trade;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy

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