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Motivations for capital controls and their effectiveness
Author(s) -
Pandey Radhika,
Pasricha Gurnain K.,
Patnaik Ila,
Shah Ajay
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1795
Subject(s) - depreciation (economics) , currency , capital (architecture) , control (management) , economics , construct (python library) , capital control , monetary economics , exchange rate , capital flows , financial capital , capital formation , human capital , microeconomics , market economy , management , profit (economics) , archaeology , computer science , history , programming language
We assess the motivations for changing capital controls and their effectiveness in India, a country with the legal and administrative machinery to implement controls. We focus on the controls on foreign borrowing that can, in principle, be motivated by macroprudential concerns. We construct a fine‐grained dataset of capital control actions on foreign borrowing in India. Using event study methodology, we assess the factors that motivate these capital control actions. We find that capital controls are tightened after appreciation and eased after depreciation of the exchange rate. We also assess the impact of controls. The results suggest no impact of capital controls on most variables, including the currency.