How trade and capital restrictions affect the probability of a balance of trade disturbance

Maryann Keating and Barry Keating

Applied Economics, 2013, vol. 45, issue 8, 963-972

Abstract: Free market economists argue that national authorities avoid restrictions on the free movement of goods, services and financial capital between countries. Yet, countries continually choose to restrict the flow of capital both into and out of the country. Why is this done? Is it done to protect the domestic banking system, to control the domestic money supply, to manage the exchange rate, to provide stability for internal markets or to avoid wide swings in the availability of capital? Are these controls effective in precluding wide swings in a country's international trade balance? This article uses panel data in a logit model to analyse policy choice with respect to an international trade and/or investment regime. The goal is to identify choices effective in reducing the likelihood of a severe Balance of Trade Disturbance (BTD) and determine if the appropriate choice is related to per capita income (pci).

Date: 2013
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DOI: 10.1080/00036846.2011.613783

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