A Survey of Academic Literature on Controls over International Capital Transactions

This paper reviews recent theoretical and empirical work on controls over international capital movements. Theoretical contributions reviewed focus on 'second best' arguments for capital market restrictions as well as arguments based on multiple equilibria. The empirical literature suggests that controls have been 'effective' in the narrow sense of influencing yield differentials. But there is little evidence that controls have helped governments meet policy objectives, with the exception of reduction in the governments' debt service costs, and no evidence that controls have enhanced economic welfare in a manner suggested by theory.