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How Effective are Capital Controls in Asia?

Publication | October 2010
How Effective are Capital Controls in Asia?

This paper examines the effects of capital account restrictions on capital flows in nine emerging Asian economies.

Among the findings is that capital controls significantly affect total flows, as well as inflows and outflows independently. A stronger impact is, however, more evident for capital outflows. The effects of restrictions also vary by asset class. Fewer controls significantly encourage large foreign direct investment (FDI) inflows and outflows. Liberalization measures are also effective in inducing portfolio outflows. However, restrictions on portfolio inflows appear ineffective in deterring inward flows. The effect of tightening versus relaxing capital controls is also tested-revealing significant asymmetric effects for other investment inflows and outflows, in which tightening is more effective than relaxing controls. Case studies for Malaysia and Thailand look at the impact of higher-frequency indexes of capital controls. The results broadly support earlier findings. Restrictions in Thailand have no significant effect on inflows, but are especially effective for outflows, particularly FDI. In Malaysia, the relaxation of capital restrictions tends to have a significant impact on FDI inflows.


  • Abstract
  • Introduction
  • Effectiveness of Capital Controls: A Literature Survey
  • Capital Controls in Emerging Asia
  • Effects of Capital Controls: Evidence from Cross-Country Panel Data
  • Conclusion
  • Appendix: Data Sources and Definitions
  • References