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Motivations for capital controls and their effectiveness

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  • Pandey, Radhika

    () (National Institute of Public Finance and Policy)

  • Pasricha, Gurnain K.

    (International Economic Analysis Department, Bank of Canada)

  • Patnaik, Ila

    () (National Institute of Public Finance and Policy)

  • Shah, Ajay

    () (National Institute of Public Finance and Policy)

Abstract

We assess the motivations for changing capital controls and their effectiveness in India, a country where there is a comprehensive capital control system covering all crossborder transactions. We focus on foreign borrowing by firms, where systemic risk concerns could potentially play a role. A novel fine-grained data set of capital control actions is constructed. We find that capital control actions are potentially motivated by exchange rate considerations, but not by systemic risk issues. A quasi-experimental design reveals that the actions appear to have no impact either on the exchange rate or on variables connected with systemic risk.

Suggested Citation

  • Pandey, Radhika & Pasricha, Gurnain K. & Patnaik, Ila & Shah, Ajay, 2016. "Motivations for capital controls and their effectiveness," Working Papers 16/168, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:16/168 Note: Working Paper 168, 2016
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    Cited by:

    1. Patnaik, Ila & Shah, Ajay & Singh, Nirvikar, 2016. "Foreign Currency Borrowing by Indian Firms: Towards a New Policy Framework," Working Papers 16/167, National Institute of Public Finance and Policy.
    2. Gurnain Pasricha & Matteo Falagiarda & Martin Bijsterbosch & Joshua Aizenman, 2015. "Domestic and Multilateral Effects of Capital Controls in Emerging Markets," NBER Working Papers 20822, National Bureau of Economic Research, Inc.
    3. Rao, R. Kavita & Tandon, Suranjali, 2016. "Revisiting the tax compliance problem using prospect theory," Working Papers 16/169, National Institute of Public Finance and Policy.
    4. R.Kavita Rao & Suranjali Tandon, 2016. "Revisiting the Tax Compliance Problem using Prospect Theory," Working Papers id:11225, eSocialSciences.
    5. Gregory Bauer & Gurnain Pasricha & Rodrigo Sekkel & Yaz Terajima, 2016. "The Global Financial Cycle, Monetary Policies and Macroprudential Regulations in Small, Open Economies," Staff Working Papers 16-38, Bank of Canada.
    6. Milena Kabza & Konrad Kostrzewa, 2016. "Prudential measures in dealing with capital flows – case of Poland," NBP Working Papers 244, Narodowy Bank Polski, Economic Research Department.

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    Keywords

    Capital controls ; Capital flows ; Exchange rate ; Foreign borrowing;

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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