IDEAS home Printed from
   My bibliography  Save this article

The Impact of Capital Controls on Growth Convergence


  • David J. Mckenzie

    () (Department of Economics, Yale University)


Both cross-sectional regression and panel data methods of growth convergence estimation are used to determine the impact of various forms of capital controls on economic growth and growth convergence. We suggest a method to control for measurement error in the cross-sectional regressions based on data quality estimates. The effect of capital controls is found to be strongly dependent on the specific type of control in place, with restrictions on current account payments having the most detrimental effect on growth. A key finding is the importance of interaction effects between capital controls and openness to trade, and capital controls and initial income. The interaction between capital controls and initial income suggests that not only do capital controls impair growth, they also reduce the rate of conditional growth convergence. The omission of these interactions may explain the failure of earlier cross-sectional studies to find effects of capital controls on growth.

Suggested Citation

  • David J. Mckenzie, 2001. "The Impact of Capital Controls on Growth Convergence," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 26(1), pages 1-25, June.
  • Handle: RePEc:jed:journl:v:26:y:2001:i:1:p:1-25

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, January.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    3. Devereux, Michael B. & Saito, Makoto, 1997. "Growth and risk-sharing with incomplete international assets markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 453-481, May.
    4. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    5. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    6. Robertson, D & Symons, J, 1992. "Some Strange Properties of Panel Data Estimators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 175-189, April-Jun.
    7. Arellano, Manuel, 1989. "A note on the Anderson-Hsiao estimator for panel data," Economics Letters, Elsevier, vol. 31(4), pages 337-341, December.
    8. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
    9. Holtz-Eakin, Douglas, 1988. "Testing for individual effects in autoregressive models," Journal of Econometrics, Elsevier, vol. 39(3), pages 297-307, November.
    10. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    11. Srinivasan, T. N., 1994. "Data base for development analysis Data base for development analysis: An overview," Journal of Development Economics, Elsevier, vol. 44(1), pages 3-27, June.
    12. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    2. Philippe Martin & Helene Rey, 2002. "Financial Globalization and Emerging Markets: With or Without Crash?," NBER Working Papers 9288, National Bureau of Economic Research, Inc.
    3. Hélène Rey & Philippe Martin, 2006. "Globalization and Emerging Markets: With or Without Crash?," American Economic Review, American Economic Association, vol. 96(5), pages 1631-1651, December.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jed:journl:v:26:y:2001:i:1:p:1-25. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sung Y. Park). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.