Working Paper: CEPR ID: DP2754
Authors: Ethan Kaplan; Dani Rodrik
Abstract: Malaysia recovered from the Asian financial crisis swiftly after the imposition of capital controls in September 1998. The fact that Korea and Thailand recovered in parallel has been interpreted as suggesting that capital controls did not play a significant role in facilitating Malaysia?s rebound. However, the financial crisis was deepening in Malaysia in the summer of 1998, while it had eased up significantly in Korea and Thailand. We employ a time-shifted differences-in-differences technique to exploit the differences in the timing of the crises. Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market.
Keywords: capital controls; Malaysia
JEL Codes: F30; O57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Malaysia's capital controls (F38) | faster economic recovery in Malaysia (O53) |
| Malaysia's capital controls (F38) | smaller declines in employment (J63) |
| Malaysia's capital controls (F38) | smaller declines in real wages (J39) |
| Malaysia's capital controls (F38) | more rapid turnaround in the stock market (G14) |
| Malaysia's capital controls (F38) | lower inflation (E31) |
| Malaysia's capital controls (F38) | lower interest rates (E43) |