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Capital Controls in Malaysia: Effectiveness and Side Effects

Author

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  • David Cook

    (Department of Economics Hong Kong University of Science & Technology Clear Water Bay Kowloon, Hong Kong, SAR, China)

  • Michael B. Devereux

    (Department of Economics University of British Columbia Vancouver, British Columbia, Canada)

Abstract

In 1998 and 1999, following the East Asian financial crisis, Malaysia imposed a set of constraints and taxes on the movement of capital out of the country. Using a quantitative equilibrium model, we attempt to construct estimates of the effects of these controls on Malaysia's recovery from the crisis. The analysis relies on a model of a dependent economy with taxation on capital movements. We focus on the aftermath of a financial panic (the East Asian crisis) in which effective international interest rates rise. Capital taxation implicitly ameliorates the brunt of such a rise in the interest rate and substantially limits its real effects. This amelioration is shown to be especially significant under fixed exchange rates. Copyright (c) 2002 Center for International Development and the Massachusetts Institute of Technology.

Suggested Citation

  • David Cook & Michael B. Devereux, 2002. "Capital Controls in Malaysia: Effectiveness and Side Effects," Asian Economic Papers, MIT Press, vol. 1(1), pages 49-82.
    • Handle: RePEc:tpr:asiaec:v:1:y:2002:i:1:p:49-82
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    Cited by:

    1. Yongseung Jung & Soyoung Kim & Doo Yong Yang, 2018. "Capital Control and Monetary Policy in Asian Emerging Market Economies," Asian Economic Papers, MIT Press, vol. 17(2), pages 111-134, Summer.
    2. Thomas D. Willett & Ekniti Nitithanprapas & Isriya Nitithanprapas & Sunil Rongala, 2004. "The Asian Crises Reexamined," Asian Economic Papers, MIT Press, vol. 3(3), pages 32-87.

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