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Capital Controls and Firm Performance

Author

Listed:
  • Eugenia Andreasen

    (Economics Department, Universidad de Santiago de Chile)

  • Sofía Bauducco

    (Central Bank of Chile)

  • Evangelina Dardati

    () (Economics Department, Universidad Alberto Hurtado)

Abstract

This paper studies the effects of capital controls on firms’ production, investment and exporting decisions. We empirically characterize the firm’s responses to the introduction of a capital control, using the Chilean encaje implemented between 1991 and 1998 as a laboratory. Motivated by our findings, we build a general equilibrium model with heterogeneous firms, financial constraints and international trade and calibrate it to the Chilean economy. We find that capital controls reduce aggregate production and investment while increasing exports, the share of exporters and TFP. The e↵ects of capital controls are exacerbated for firms in more capital-intensive sectors and for exporters.

Suggested Citation

  • Eugenia Andreasen & Sofía Bauducco & Evangelina Dardati, 2019. "Capital Controls and Firm Performance," ILADES-UAH Working Papers inv331, Universidad Alberto Hurtado/School of Economics and Business.
  • Handle: RePEc:ila:ilades:inv331
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    References listed on IDEAS

    as
    1. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
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    Keywords

    Capital controls; firm dynamics; financial frictions; international trade.;

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