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Can short-term capital controls promote capital inflows?

  • Cordella, Tito

In an economy à la Diamond and Dybvig (1983), we present an example in which foreign lenders find it profitable to invest in an emerging market if, and only if, the emerging market government imposes taxes on short-term capital inflows. This implies that capital controls that are effective in reducing the vulnerability of emerging markets to financial crises may increase the volume of capital inflows.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-494C7YK-1/2/757f296155a0341ace570a33c586c0d2
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 22 (2003)
Issue (Month): 5 (October)
Pages: 737-745

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Handle: RePEc:eee:jimfin:v:22:y:2003:i:5:p:737-745
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000. "Controls on Capital Inflows: Do they Work?," NBER Working Papers 7645, National Bureau of Economic Research, Inc.
  2. Postlewaite, Andrew & Vives, Xavier, 1987. "Bank Runs as an Equilibrium Phenomenon," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 485-91, June.
  3. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
  4. Bernard Laurens & Jaime Cardoso, 1998. "Managing Capital Flows; Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
  5. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises ; The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
  6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  7. Marcelo Soto & Salvador Valdés, 1996. "¿Es el Control Selectivo de Capitales Efectivo en Chile? Su Efecto sobre el Tipo de Cambio Real," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 77-108.
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