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Capital Controls: An Evaluation

In: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences

  • Nicolas Magud
  • Carmen M. Reinhart

The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a “success” and (iv) the empirical studies lack a common methodology—furthermore these are significantly “overweighted” by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to “standardize” the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies only in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia.

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This chapter was published in:
  • Sebastian Edwards, 2007. "Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences," NBER Books, National Bureau of Economic Research, Inc, number edwa06-1, December.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0157.
    Handle: RePEc:nbr:nberch:0157
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    1. Reinhart, Carmen & Smith, R. Todd, 1998. "Too much of a good thing: The macroeconomic effects of taxing capital inflows," MPRA Paper 13234, University Library of Munich, Germany.
    2. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
    3. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
    4. Reinhart, Carmen & Edison, Hali, 2001. "Stopping hot money," MPRA Paper 13862, University Library of Munich, Germany.
    5. Areendam Chanda, 2002. "The Influence of Capital Controls on Long Run Growth: Where and How Much?," International Finance 0201001, EconWPA.
    6. Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.
    7. Eliane A. Cardoso & Ilan Goldfajn, 1997. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Working Papers 97/115, International Monetary Fund.
    8. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "El problema de la afluencia de capital: Conceptos y temas
      [The Capital Inflows Problem: Concepts and Issues]
      ," MPRA Paper 13682, University Library of Munich, Germany.
    9. Ethan Kaplan & Dani Rodrik, 2001. "Did the Malaysian Capital Controls Work?," NBER Working Papers 8142, National Bureau of Economic Research, Inc.
    10. Akira Ariyoshi & Andrei Kirilenko & Inci Ötker & Bernard Laurens & Jorge Iván Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls: Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
    11. Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000. "Controls on Capital Inflows: Do they Work?," NBER Working Papers 7645, National Bureau of Economic Research, Inc.
    12. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    13. Isriya Nitithanprapas & Sunil Rongala & Thomas D. Willett, 2002. "The Role of Capital Controls and Currency Regimes in the Asian Crisis," Claremont Colleges Working Papers 2002-21, Claremont Colleges.
    14. Natalia T. Tamirisa & R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 98/181, International Monetary Fund.
    15. Natalia T. Tamirisa, 2004. "Do Macroeconomic Effects of Capital Controls Vary by their Type? Evidence From Malaysia," IMF Working Papers 04/3, International Monetary Fund.
    16. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
    17. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2004. "Capital Controls, Liberalizations, and Foreign Direct Investement," NBER Working Papers 10337, National Bureau of Economic Research, Inc.
    18. Reinhart, Carmen M. & Smith, R. Todd, 2002. "Temporary controls on capital inflows," Journal of International Economics, Elsevier, vol. 57(2), pages 327-351, August.
    19. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
    20. Jacques Miniane & John H. Rogers, 2003. "Capital controls and the international transmission of U.S. money shocks," International Finance Discussion Papers 778, Board of Governors of the Federal Reserve System (U.S.).
    21. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
    22. Bernard Laurens & Jaime Cardoso, 1998. "Managing Capital Flows: Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
    23. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
    24. Francisco Gallego & Leonardo Hernández & Klaus Schmidt-Hebbel, 1999. "Capital Controls in Chile: Effective? Efficient?," Working Papers Central Bank of Chile 59, Central Bank of Chile.
    25. Sebastian Edwards & Roberto Rigobon, 2005. "Capital Controls, Exchange Rate Volatility and External Vulnerability," NBER Working Papers 11434, National Bureau of Economic Research, Inc.
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