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Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s

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  • Montiel, Peter
  • Reinhart, Carmen M.

Abstract

In the early 1990s capital flows to the Asian economies were dominated by FDI. By contrast, Latin America was attracting little FDI and a large share of its inflows were either short-term or portfolio and viewed as “hot money.” These differences gave rise to the view that Latin America was more vulnerable to a reversal of capital flows than Asia. Yet, scant attention was given to the fact that as the capital inflows persisted those regional differences were eroding–it took the crises of 1997 to reveal that Asia’s exposure to the vagaries of short-term capital was vast. Here we present cross-country evidence that capital controls influence the composition of flows, if not their volume while policies of sterilized intervention influence both volume and composition, skewing flows to the short end of the maturity spectrum. We conclude that Asia’s increasing reliance on short term flows was, in large part, due to the macroeconomic policy response to the initial surge in capital inflows.
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  • Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
  • Handle: RePEc:eee:jimfin:v:18:y:1999:i:4:p:619-635
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    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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