Working Paper: NBER ID: w7413
Authors: Sebastian Edwards
Abstract: In the aftermath of the East Asian crisis a number of authors have argued that capital mobility is highly destabilizing, and that emerging countries would benefit from restricting capital flows. In this paper I investigate, from a historical perspective, the effectiveness of capital controls. I deal with Tobin taxes, controls on outflows and controls on inflows. I argue that controls on outflows have seldom worked as expected. They introduce major distortions and breed corruption. Market-based controls on inflows - similar to those implemented by Chile - have the potential for lengthening the maturity of foreign debt. They are not very effective, however, in achieving other objectives, including a higher degree of monetary policy independence.
Keywords: No keywords provided
JEL Codes: F32; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital Controls on Outflows (F32) | Increased Capital Flight (F32) |
| Capital Controls during Crisis (F38) | Ineffective Controls (D82) |
| Imposition of Capital Controls (F38) | False Sense of Security (F52) |
| False Sense of Security (F52) | Complacency and Macroeconomic Imbalances (E32) |
| Temporary Imposition of Outflow Controls (F38) | Stabilization of the Economy (E63) |
| Capital Controls (F38) | Behavior of Exchange Rates (F31) |
| Capital Controls (F38) | Influence on Monetary Policy (E52) |
| Capital Controls (F38) | Macroeconomic Instability (E32) |