Exchange and Capital Controls as Barriers to Trade

IMF Working Papers, June 1, 1998

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Exchange and Capital Controls as Barriers to Trade

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Bibliographic details

• Authors: Natalia T. Tamirisa
• Published: June 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451955194.001

Summary

• The paper assesses the effect of exchange and capital controls on trade using the gravity-equation framework, where bilateral exports depend on:
  • the distance between countries,
  • the countries’ size and wealth,
  • tariff barriers,
  • exchange and capital controls.
• The extent of exchange and capital controls is measured by unique indices.
• Main summary finding:
  • Controls on current payments and transfers are found to be a minor impediment to trade.
  • Capital controls significantly reduce exports into developing and transition economies.
  • Conclusion: further capital account liberalization could significantly foster trade.

Findings and Evidence

• Empirical framework: gravity-equation approach linking bilateral exports to structural and policy variables including exchange and capital controls.
• Measurement:
  • Extent of exchange and capital controls measured by unique indices developed by the author.
• Key empirical findings:
  • Controls on current payments and transfers — minor impediment to trade given liberalization of exchange systems.
  • Capital controls — significant negative effect on exports into developing and transition economies.

Policy Implications

• Further capital account liberalization could significantly foster trade, particularly for developing and transition economies.
• Given limited trade impediment from current-account exchange restrictions, policy focus on capital account measures may yield larger trade gains.

Scope, Subjects, and Keywords

• Subjects: Balance of payments, Capital controls, Exchange restrictions, Exports, Foreign exchange, International trade, Tariffs, Taxes, Trade barriers
• Keywords: bilateral trade flow, capital controls, capital controls as well as control, control, development, effectiveness of control, effects of control, enforcement of control, exchange, exchange controls, Exchange restrictions, Exports, financing trade, Global, indices of control, liberalization of control, pervasiveness of control, statistics yearbook, Tariffs, trade, Trade barriers, trade in factor, unmeasured trade distortion, WP

Content in this bundle

• Exchange and Capital Controls as Barriers to Trade - WP/98/81
  • Exchange and Capital Controls as Barriers to Trade - WP/98/81 (Markdown version)
  • Exchange and Capital Controls as Barriers to Trade - WP/98/81 (PDF)