Do capital controls influence the volume and composition of capital flows? Evidence from the 1990s

Carmen Reinhart and Peter Montiel

MPRA Paper from University Library of Munich, Germany

Abstract: In the early 1990s capital flows to the Asian economies were dominated by FDI. By contrast, Latin America was attracting little FDI and a large share of its inflows were either short-term or portfolio and viewed as “hot money.” These differences gave rise to the view that Latin America was more vulnerable to a reversal of capital flows than Asia. Yet, scant attention was given to the fact that as the capital inflows persisted those regional differences were eroding–it took the crises of 1997 to reveal that Asia’s exposure to the vagaries of short-term capital was vast. Here we present cross-country evidence that capital controls influence the composition of flows, if not their volume while policies of sterilized intervention influence both volume and composition, skewing flows to the short end of the maturity spectrum. We conclude that Asia’s increasing reliance on short term flows was, in large part, due to the macroeconomic policy response to the initial surge in capital inflows.

Keywords: capital; flows; controls; exchange; rates; monetary; policy; stock; prices (search for similar items in EconPapers)
JEL-codes: E6 F31 F41 (search for similar items in EconPapers)
Date: 1999-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (220)

Published in Journal of International Money and Finance 4.18(1999): pp. 619-635

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Related works:
Journal Article: Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s (1999)
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