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Are price-based capital account regulations effective in developing countries?

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  • Antonio David

Abstract

In this article, we evaluate the effectiveness of policy measures adopted by Chile and Colombia aiming to mitigate the deleterious effects of pro-cyclical capital flows. In the case of Chile, according to our GMM analysis, capital controls succeeded in reducing net short-term capital flows, but did not affect long-term flows. As far as Colombia is concerned, the regulations were capable of affecting total flows and also long-term ones. In addition, our cointegration models indicate that the regulations did not have a direct effect on the real exchange rate in the Chilean case. Nonetheless, the model used for Colombia did detect a direct impact of the capital controls on the real exchange rate. Therefore, our results do not seem to support the idea that those regulations were easily evaded.

Suggested Citation

  • Antonio David, 2009. "Are price-based capital account regulations effective in developing countries?," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3375-3388.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:26:p:3375-3388
    DOI: 10.1080/00036840701367689
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    Cited by:

    1. International Monetary Fund, 2009. "Colombia: Selected Issues," IMF Staff Country Reports 2009/024, International Monetary Fund.
    2. Mr. Benedict J. Clements & Herman Kamil, 2009. "Are Capital Controls Effective in the 21st Century? the Recent Experience of Colombia," IMF Working Papers 2009/030, International Monetary Fund.
    3. Xinhua Gu & Baomin Dong, 2012. "A simple model of two-country bargaining for financial integration," Applied Economics Letters, Taylor & Francis Journals, vol. 19(8), pages 725-728, May.
    4. Antonio C. David, 2010. "Controls on capital inflows and the transmission of external shocks," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(1), pages 223-223, January.
    5. David, Antonio C., 2007. "Controls on capital inflows and external shocks," Policy Research Working Paper Series 4176, The World Bank.

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