Open AccessEffects of Capital Control Actions on Cross-Border Trade
Author(s) -
Chokri Zehri
Publication year - 2022
Publication title -
scientific annals of economics and business
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.204
H-Index - 6
eISSN - 2501-3165
pISSN - 2501-1960
DOI - 10.47743/saeb-2022-0008
Subject(s) - economics , capital control , monetary economics , volatility (finance) , capital (architecture) , exchange rate , capital account , panel data , capital formation , capital deepening , capital flows , capital flight , capital consumption allowance , control (management) , emerging markets , financial capital , physical capital , macroeconomics , finance , econometrics , human capital , microeconomics , market economy , incentive , profit (economics) , management , archaeology , history
The evidence that capital controls adversely affect cross-border trade is debatable. This study proves that capital controls may support international trade by mitigating the negative effect of macroeconomic volatility. We use quarterly data from a sample of 25 emerging countries over the period 2011-2019. Using long- and short-standing capital controls dynamic panel models, and diversifying robust estimations techniques, our results show that capital controls alleviate the adverse effect of the exchange rate, interest rate differential, and inflation volatilities. The long-lasting capital controls «walls» are more effective than short-lasting capital control «gates». Besides, the effects of these controls are asymmetric regarding the financial development level and category of flows for which are applied, inflows or outflows. The study highlights the beneficial role of the macroprudential policy in supporting capital control actions. The results of this study have two main policy implications, the effectiveness of ‘walls’ controls and the importance of macroeconomic policy coordination.