Capital Control and Heterogeneous Impact on Capital Flows

Anirban Sanyal

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the heterogeneous direct and spillover effect of capital control on gross capital flows across three major institutional sectors namely public sector, banks and corporate. The paper examines the possible heterogeneity in the effect of capital control on the capital inflows to these institutional sectors using spatial econometric models. The empirical findings indicate that the direct effect of capital control moderates portfolio inflows to public sector whereas the portfolio inflows to banks and corporate sector does not respond to the capital control measures. The spillover effect of capital control increases capital inflows to all sectors in other countries. The paper explains the observed heterogeneity in the capital control effects by introducing signaling effect in a portfolio choice model. The paper argues that the heterogeneous direct effect is driven by private signals of capital control received by the investors about the state of economy whereas the spillover effect of capital control is mainly driven by the hedging and search for better yield.

Keywords: Capital control; Spillover effect; Portfolio Choice; Signaling effect; Spatial Durbin Model (search for similar items in EconPapers)
JEL-codes: C21 F32 F42 (search for similar items in EconPapers)
Date: 2022-08-15
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-opm
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Related works:
Working Paper: Capital Control and Heterogeneous Impact on Capital Flows (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114221

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