Capital Controls: Mud in the Wheels of Market Discipline
AbstractWidespread support for capital account liberalization in emerging markets has recently shifted to skepticism and even support for capital controls in certain circumstances. This sea-change in attitudes has been bolstered by the inconclusive macroeconomic evidence on the benefits of capital account liberalization. There are several compelling reasons why it is difficult to measure the aggregate impact of capital controls in very different countries. Instead, a new and more promising approach is more detailed microeconomic studies of how capital controls have generated specific distortions in individual countries. Several recent papers have used this approach and examined very different aspects of capital controls from their impact on crony capitalism in Malaysia and on financing constraints in Chile, to their impact on US multinational behavior and the efficiency of stock market pricing. Each of these diverse studies finds a consistent result: capital controls have significant economic costs and lead to a misallocation of resources. This new microeconomic evidence suggests that capital controls are not just sand', but rather mud in the wheels' of market discipline.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10284.
Date of creation: Feb 2004
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Publication status: published as Borio, Claudio, et al (eds.) Market discipline across countries and industries. Cambridge and London: MIT Press, 2004.
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Other versions of this item:
- Forbes, Kristin J., 2004. "Capital Controls: Mud in the Wheels of Market Discipline," Working papers 4454-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- F3 - International Economics - - International Finance
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-31 (All new papers)
- NEP-IFN-2004-08-31 (International Finance)
- NEP-MFD-2004-08-31 (Microfinance)
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