Capital Controls in Emerging Economies

By Christine Ries Hekman; Richard J. Sweeney | Go to book overview

6
Capital Controls and Corporate Investment Behavior

Christine P. Ries


Introduction

In Chapter 2 of this book, Manuel Guitián reviews the role of controls on capital flows in the postwar development of the global economy. In essence, he suggests that government attempts to restrict capital flows, either by restricting rates of return or erecting barriers to the flow of capital, fall within the "international financial code of conduct" established after World War II. Such financial code of conduct norms were established at Bretton Woods in response to the central challenge of the time--"to insure the integration of war-ridden and restricted economies into an orderly international economic system."1 On the surface, the challenge of providing for an orderly integration of the economies of formerly communist countries into the global economic system may seem similar in character to that of the postwar problem.

This chapter accepts the challenge of integration, but rejects the assumption that capital controls are the most effective policy prescription for the achievement of this objective. Basic elements of the global economy and global social structure have changed so dramatically since the 1950s that the prescriptions of that time are not only outmoded for today, but are potentially destructive. At a minimum, national policymakers must consider a number of more pervasive though indirect consequences of capital controls. These include effects on national comparative advantage and on industrial and ownership patterns of the future.

The international policy norms adopted at the end of World War II were based on a vision of a world economic system that consisted of relatively independent, sovereign nations. The ability of each regime to offer independ-

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Capital Controls in Emerging Economies
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface ix
  • Acknowledgments xi
  • Introduction and Overview 1
  • Notes 12
  • 1 - Orthodoxy is Right: Liberalize The Capital Account Last 13
  • Notes 16
  • 2 - Reality and the Logic Of Capital Flow Liberalization 17
  • Introduction 17
  • Notes 29
  • 3 - Preconditions for Liberalization Of Capital Flows: a Review And Interpretation 33
  • Introduction 33
  • Notes 43
  • 4 - The Information Costs Of Capital Controls 45
  • Introduction 45
  • Conclusions 54
  • References 55
  • 5 - Currency Convertibility, Policy Credibility and Capital Flight In Poland and the Czech and Slovak Federal Republic 63
  • Introduction 63
  • Notes 83
  • References 85
  • 6 - Capital Controls and Corporate Investment Behavior 89
  • Introduction 89
  • Notes 108
  • References 108
  • 7 - Capital Account Liberalization and Policy Incentives: an Endogenous Policy View 111
  • Introduction 111
  • Notes 131
  • 8 - A Payments Mechanism For The Independent States Of The Former Soviet Union 137
  • Introduction: Economic Rationale For a Payments Mechanism 137
  • References 157
  • About the Editors and Contributors 159
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