Economic Effects and Structural Determinants of Capital Controls

Abstract

This paper studies determinants and effects of capital controls using a panel of 61 developed and developing countries. The results suggest that capital account restrictions are more likely to be in place in countries with low income, a large share of government, and where the central bank is not independent. Other determinants of controls include the exchange rate regime, current account imbalances and the degree of openness of the economy. We also find that capital controls and other foreign exchange restrictions are associated with higher inflation and lower real interest rates. We do not find any robust correlation between our measures of controls and the rate of growth, although there is evidence that countries with large black market premia grow more slowly.

Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns

“…Grilli and Milesi-Ferretti (1995) find that capital controls are associated with a higher ratio of government consumption to GDP, higher government revenues from seigniorage and lower real interest rates. Alesina et al (1994) find that maintaining capital controls leads to a lower stock of government debt (presumably through lower debt service costs), and that countries with weaker central banks (and therefore lower resistance to the use of inflation tax) are more likely to be using capital controls.…”

The impact of globalization on the composition of government expenditures: Evidence from panel data

“…And third, the effects of globalization might be exaggerated in the popular discussion and might simply not exist. 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 Goods Subsidies Capital Interest 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 (2004), Grilli and Milesi-Ferretti (1995), Dreher and Siemers (2005). 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Notes: Test for joint significance of the respective variable in the system of equations.…”

“…7 The respective data has been collected by Grilli and Milesi-Ferretti (1995) and Dreher and Siemers (2005).…”

Asian financial integration: Global or regional? Evidence from money and bond markets

“…The third category is broadly based on regulatory or institutional factors. Often capital controls and legal restrictions such as restrictions on foreign equity holdings are employed to assess the extent of financial integration (e.g., Grilli and Milesi-Ferretti, 1995;Magud and Reinhart, 2006). Alternatively, Kearney and Lucey (2004) categorise two broad categories of financial integration -direct and indirect measures.…”