Recent controversies on capital controls

Vol. 24 No. 2 (2004)

Apr-Jun / 2004
Published April 1, 2004
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Carvalho, Fernando J. Cardim de, and João Sicsú. 2004. “Recent Controversies on Capital Controls”. Brazilian Journal of Political Economy 24 (2):163-85. https://doi.org/10.1590/0101-31572004-1620.

Recent controversies on capital controls

Fernando J. Cardim de Carvalho
Instituto de Economia da Universidade Federal do Rio de Janeiro – IE-UFRJ, Rio de Janeiro/RJ, Brasil
João Sicsú
Instituto de Economia da Universidade Federal do Rio de Janeiro – IE-UFRJ, Rio de Janeiro/RJ, Brasil.
Brazilian Journal of Political Economy, Vol. 24 No. 2 (2004), Apr-Jun / 2004, Pages 163-185

Abstract

The efficacy of capital controls has been the object of renewed interest, especially in the aftermath of the Asian crisis of 1997. In particular, the IMF, that had decided to push for capital account convertibility in 1997, went through a change of mind of sorts, substituting the concern with the right sequencing of liberalizing reforms for the attempt to obtain immediate liberalization in developing countries. In the paper, it is shown that the theoretical debate around capital controls is in fact the same debate concerning financial regulation in general, opposing the Efficient Market Hypothesis to imperfect market hypotheses. It is also shown that the most recent empirical studies on the effects of capital account liberalization (and thus on the effects of keeping capital controls in force) do not have shown significant positive results in terms of most macroeconomic target variables, such as employment, growth, price stability, etc. These lack of definite results seem to suggest that liberalization efforts are mostly premature, moved by ideologically-founded pro-free market views rather than by empirical evidence.

JEL Classification: F38; F32; F40.


Keywords: Capital control financial liberalization capital movements