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Capital Outflow Restrictions and Dollar Drainage

Author

Listed:
  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

  • Karlia Clarke

    (Bank of Jamaica, Kingston, Jamaica)

  • Oronde Small

    (Bank of Jamaica, Kingston, Jamaica)

Abstract

This paper identifies foreign cross-listings as a potential drain on reserves and a source of vulnerability to capital reversals for host nations. Simulations of a portfolio choice model demonstrate that restrictions on the outflow side of capital markets are most effective in mitigating this vulnerability. A panel data analysis that distinguishes between outflow and inflow restrictions shows that it is inflow restrictions that have a net negative effect on the total amount of capital in the economy. Outflow restrictions, therefore, are preferable to inflow restrictions as they limit reserve drainage without stunting capital market growth.

Suggested Citation

  • Uluc Aysun & Karlia Clarke & Oronde Small, 2022. "Capital Outflow Restrictions and Dollar Drainage," Working Papers 2022-02, University of Central Florida, Department of Economics.
    • Handle: RePEc:cfl:wpaper:2022-02ua
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    More about this item

    Keywords

    developing countries; capital ows; restrictions; portfolio choice; panel estimation.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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