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Rethinking the economics of capital mobility and capital controls

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  • Thomas I. Palley

Abstract

This paper reexamines the issue of international financial capital mobility, which is today’s economic orthodoxy. Discussion is often framed in terms of the impossible trinity. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It also distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy, pointing to the ideological dimension behind today’s policy orthodoxy. JEL Classification: F00; F32; F33.

Suggested Citation

  • Thomas I. Palley, 2009. "Rethinking the economics of capital mobility and capital controls," Brazilian Journal of Political Economy, Center of Political Economy, vol. 29(3), pages 15-34.
    • Handle: RePEc:ekm:repojs:v:29:y:2009:i:3:p:15-34:id:484
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    Cited by:

    1. Sunanda Sen, 2012. "Managing Global Financial Flows at the Cost of National Autonomy: China and India," Economics Working Paper Archive wp_714, Levy Economics Institute.
    2. Solikin M. Juhro & Miranda S. Goeltom, 2013. "The Monetary Policy Regime In Indonesia," Working Papers WP/17/2013, Bank Indonesia.
    3. Solikin M. Juhro, 2023. "Future Central Banking In Emerging Market Economies," Working Papers WP/01/2023, Bank Indonesia.
    4. Solikin M. Juhro, 2014. "THE ROLE OF THE CENTRAL BANK IN PROMOTING SUSTAINABLE GROWTH: Perspectives on the Implementation of Flexible ITF in Indonesia," Working Papers WP/17/2014, Bank Indonesia.
    5. Michael Effah Asamoah & Imhotep Paul Alagidede & Frank Adu, 2021. "Private Capital Flows, Real Sector Growth and Institutional Quality in Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(1), pages 171-207, January.
    6. Rainer Bartel, 2009. "Weltwirtschaftskrise und Politikwechsel," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 35(2), pages 145-186.
    7. André Moreira Cunha & Daniela Magalhães Prates & Pedro Perfeito da Silva, 2020. "External Financial Liberalization and Macroeconomic Performance in Emerging Countries: An Empirical Evaluation of the Brazilian Case," Development and Change, International Institute of Social Studies, vol. 51(5), pages 1225-1245, September.

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    More about this item

    Keywords

    capital mobility; capital controls; impossible trinity;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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