Effectiveness of Capital Outflow Restrictions

This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net...

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Bibliographic Details
Published in:Policy File 2014
Main Authors: Saborowski, Christian, Sanya, Sarah, Weisfeld, Hans, Yepez, Juan
Format: Report
Language:English
Subjects:
Economic policy
International Monetary Fund
International/Economic development
Online Access:Request full text
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Summary:This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net capital outflows. We find that such tightening is effective if it is supported by strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive. When none of these three conditions is fulfilled, a tightening of restrictions fails to reduce net outflows as it provokes a sizeable decline in gross inflows, mainly driven by foreign investors.