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How trade and capital restrictions affect the probability of a balance of trade disturbance

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  • Maryann O. Keating
  • Barry P. Keating

Abstract

Free market economists argue that national authorities avoid restrictions on the free movement of goods, services and financial capital between countries. Yet, countries continually choose to restrict the flow of capital both into and out of the country. Why is this done? Is it done to protect the domestic banking system, to control the domestic money supply, to manage the exchange rate, to provide stability for internal markets or to avoid wide swings in the availability of capital? Are these controls effective in precluding wide swings in a country's international trade balance? This article uses panel data in a logit model to analyse policy choice with respect to an international trade and/or investment regime. The goal is to identify choices effective in reducing the likelihood of a severe Balance of Trade Disturbance (BTD) and determine if the appropriate choice is related to per capita income (pci).

Suggested Citation

  • Maryann O. Keating & Barry P. Keating, 2013. "How trade and capital restrictions affect the probability of a balance of trade disturbance," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 963-972, March.
    • Handle: RePEc:taf:applec:45:y:2013:i:8:p:963-972
    DOI: 10.1080/00036846.2011.613783
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    References listed on IDEAS

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    1. Claudio Borio & Mathias Drehmann, 2011. "Toward an Operational Framework for Financial Stability: “Fuzzy” Measurement and Its Consequences," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 4, pages 063-123, Central Bank of Chile.
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