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Effects of Capital Control Actions on Cross-Border Trade

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Listed:
  • Chokri Zehri

    (Prince Sattam Bin Abdulaziz University)

Abstract

The evidence that capital controls adversely affect cross-border trade is debatable. This study proves that capital controls may support international trade by mitigating the negative effect of macroeconomic volatility. We use quarterly data from a sample of 25 emerging countries over the period 2011-2019. Using long- and short-standing capital controls dynamic panel models, and diversifying robust estimations techniques, our results show that capital controls alleviate the adverse effect of the exchange rate, interest rate differential, and inflation volatilities. The long-lasting capital controls «walls» are more effective than short-lasting capital control «gates». Besides, the effects of these controls are asymmetric regarding the financial development level and category of flows for which are applied, inflows or outflows. The study highlights the beneficial role of the macroprudential policy in supporting capital control actions. The results of this study have two main policy implications, the effectiveness of ‘walls’ controls and the importance of macroeconomic policy coordination.

Suggested Citation

  • Chokri Zehri, 2022. "Effects of Capital Control Actions on Cross-Border Trade," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(1), pages 29-55, March.
    • Handle: RePEc:aic:saebjn:v:69:y:2022:i:1:p:29-55:n:8
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    References listed on IDEAS

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    1. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 317-367.
    2. G. Bush, 2019. "Financial Development and the Effects of Capital Controls," Open Economies Review, Springer, vol. 30(3), pages 559-592, July.
    3. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
    4. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    5. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 317-367.
    Full references (including those not matched with items on IDEAS)

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