Journal of Economic Perspectives: Vol. 13 No. 4 (Fall 1999)


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How Effective Are Capital Controls?

Article Citation

Edwards, Sebastian. 1999. "How Effective Are Capital Controls?" Journal of Economic Perspectives, 13(4): 65-84.

DOI: 10.1257/jep.13.4.65


A number of authors have recently argued that, in order to avoid financial instability, emerging countries should rely on capital controls. Two type of controls have been considered: controls on capital outflows, and controls on capital inflows. In this paper I review the historical evidence on the effectiveness of these two type of controls. I argue that controls on outflows have been ineffective. They are circumvented and breed corruption. I also analyze Chile's recent experience with controls on inflows, and I argue that their effectiveness has been exaggerated.

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Edwards, Sebastian (UCLA and NBER)

JEL Classifications

F32: Current Account Adjustment; Short-term Capital Movements
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O19: International Linkages to Development; Role of International Organizations


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