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Are price-based capital account regulations effective in developing countries ?

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  • David, Antonio C.

Abstract

The author evaluates the effectiveness of policy measures adopted by Chile and Colombia, aiming to mitigate the deleterious effects of pro-cyclical capital flows. In the case of Chile, according to his Generalized Method of Moments (GMM) analysis, capital controls succeeded in reducing net short-term capital flows but did not affect long-term flows. As far as Colombia is concerned, the regulations were capable of affecting total flows and also long-term ones. In addition, the co-integration models indicate that the regulations did not have a direct effect on the real exchange rate in the Chilean case. Nonetheless, the model used for Colombia did detect a direct impact of the capital controls on the real exchange rate. Therefore, the results do not seem to support the idea that those regulations were easily evaded.

Suggested Citation

  • David, Antonio C., 2007. "Are price-based capital account regulations effective in developing countries ?," Policy Research Working Paper Series 4175, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4175
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    1. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
    2. Ashoka Mody & Mark P. Taylor, 2013. "International capital crunches: the time-varying role of informational asymmetries," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2961-2973, July.
    3. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    4. Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.
    5. Cordella, Tito, 2003. "Can short-term capital controls promote capital inflows?," Journal of International Money and Finance, Elsevier, vol. 22(5), pages 737-745, October.
    6. José Antonio Ocampo & Camilo Ernesto Tovar, 1999. "Price-based capital account regulations: the Colombian experience," Documentos de Investigación 3372, Cepal Naciones Unidas.
    7. Antonio David, 2005. "Do controls on capital inflows insulate domestic variables against external shocks?," Money Macro and Finance (MMF) Research Group Conference 2005 9, Money Macro and Finance Research Group.
    8. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
    9. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 15(3), pages 132-150, Autumn.
    10. Hernán Rincón, 1999. "Efectividad Del Control A Los Flujos De Capital: Un Reexamen Empírico De La Experiencia Reciente Reciente En Colombia," Borradores de Economia 2412, Banco de la Republica.
    11. Francisco Gallego & Leonardo Hernández & Klaus Schmidt-Hebbel, 2002. "Capital Controls in Chile: Were They Effective?," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 12, pages 361-412, Central Bank of Chile.
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    Cited by:

    1. International Monetary Fund, 2009. "Colombia: Selected Issues," IMF Staff Country Reports 2009/024, International Monetary Fund.
    2. Mr. Benedict J. Clements & Herman Kamil, 2009. "Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia," IMF Working Papers 2009/030, International Monetary Fund.
    3. Xinhua Gu & Baomin Dong, 2012. "A simple model of two-country bargaining for financial integration," Applied Economics Letters, Taylor & Francis Journals, vol. 19(8), pages 725-728, May.
    4. Antonio C. David, 2010. "Controls on capital inflows and the transmission of external shocks," Cambridge Journal of Economics, Oxford University Press, vol. 34(1), pages 223-223, January.
    5. David, Antonio C., 2007. "Controls on capital inflows and external shocks," Policy Research Working Paper Series 4176, The World Bank.

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    Keywords

    Macroeconomic Management; Capital Flows; Economic Theory&Research; Economic Stabilization; Financial Economics;
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