Globalization of capital flows and the (in)disciplining of nations

Arthur Blouin, Sayantan Ghosal and Sharun W. Mukand

Journal of Comparative Economics, 2025, vol. 53, issue 1, 209-226

Abstract: We analyze whether the threat of capital flight “disciplines” governments and improves governance. Our findings show that the globalization of capital flows influences governance through two competing channels. When a government effectively manages domestic governance, it seeks to minimize exposure to sudden capital flight driven by external factors. In contrast, when a government fails to manage domestic governance, the threat of capital flight can impose discipline, improving governance and welfare by placing the country in a “golden straitjacket”—the disciplining effect. However, capital flight may also negatively affect governance quality. As a result, this paper proposes a novel and qualified role for modest capital controls. Finally, we present evidence consistent with the predictions of our theoretical framework.

Keywords: Governance; Capital flight; Capital controls; Discipline; Capture (search for similar items in EconPapers)
JEL-codes: F36 F60 F65 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Globalization of Capital Flows and the (In)Disciplining of Nations (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:53:y:2025:i:1:p:209-226

DOI: 10.1016/j.jce.2024.12.005

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