Capital Inflows: The Role of Controls

IMF Staff Position Notes, February 19, 2010

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Capital Inflows: The Role of Controls

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Bibliographic details

• Authors: Jonathan David Ostry, Atish R. Ghosh, Karl F Habermeier, Marcos Chamon, Mahvash S Qureshi, Dennis B. S. Reinhardt
• Published: February 19, 2010
• Series: IMF Staff Position Notes
• DOI: https://doi.org/10.5089/9781462347513.004

Summary

• With the global economy beginning to emerge from the financial crisis, capital is flowing back to emerging market countries (EMEs).
• Capital mobility allows countries with limited savings to attract financing for productive investment projects, foster the diversification of investment risk, promote intertemporal trade, and contribute to the development of financial markets.
• The benefits from a free flow of capital across borders are similar to the benefits from free trade (see Reaping the Benefits of Financial Globalization, IMF Occasional Paper 264, 2008).
• Imposing restrictions on capital mobility means foregoing, at least in part, these benefits, owing to the distortions and resource misallocation that controls give rise to (see Edwards and Ostry, 1992, for an example of how capital controls interact with other distortions in the economy).

Key findings and themes

• Capital inflows to EMEs have resumed as the global economy begins to recover from the financial crisis.
• Capital mobility supports:
  • financing for productive investment projects in countries with limited savings;
  • diversification of investment risk;
  • intertemporal trade;
  • development of financial markets.
• Capital controls create distortions and resource misallocation that reduce the net benefits of capital mobility.

Subjects and keywords

• Subject: Balance of payments, Capital controls, Capital flows, Capital inflows, Exchange rates, Foreign direct investment, Foreign exchange
• Keywords: banking system, capital, capital control, Capital controls, Capital flows, Capital inflows, capital mobility, control, control measure, EME, exchange rate, Exchange rates, Foreign direct investment, Global, policy control, SPN

IMF Staff Position Note: "Capital Inflows: The Role of Controls", February 19, 2010.

Content in this bundle

• Appendix 1. Inflows, Fragilities, and Controls—Some Empirics
  • Appendix 1. Inflows, Fragilities, and Controls—Some Empirics (Markdown version)
  • Appendix 1. Inflows, Fragilities, and Controls—Some Empirics (PDF)