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Capital controls and long-term economic growth

Jessica G Nembhard, University of Massachusetts Amherst


This study is concerned with the effects of capital controls on long-term economic growth. At its conceptual core, the dissertation addresses weaknesses in neoclassical and Keynesian theory, viz. the problems of both market and state coordination, that preclude an adequate analysis of the use of capital controls. Investigated are (1) the problems associated with more traditional approaches to the analysis of the role of capital controls; (2) the explication of an alternative theoretical structure; and (3) the utility of that theoretical structure in the case analysis of two newly industrializing economies. The study makes use of theoretical, historical, institutional and empirical analyses. The study's investigation of capital controls within the context of overall stat economic planning is methodologically innovative in that it highlights a specific configuration on government interventions termed a "government intervention triad": government economic planning, capital control regulations and credit control systems. The findings from this study highlight and tend to resolve the inherent paradox between the practices of capital controls and conventional theoretical analyses. When analytic models capture and emphasize institutional and structural realities, such as unemployment, uncertainty and instability in financial markets, heterogeneous agents, multiple equilibria and differentials between social and private returns, a positive case for controls is often made. This may explain the widespread use of the strategy despite the generally negative projections from more traditionally prominent theories. Two case studies, of the Republic of Korea and the Federative Republic of Brazil, illustrate the ways in which a relatively consistent history of selectively imposed and well-enforced capital controls, used in conjunction with credit controls and development/industrial planning, helps to solve the problems of capital creation, preservation, productivity, coordination and discipline. In addition to the evidence from the case studies, empirical analyses reveal that both countries have low levels of estimated capital flight relative to similar countries. Econometric analysis of their capital flight suggests that standard regressions of the determinants of capital flight may not be particularly helpful when applied to countries with low levels of flight and with a history of consistent use of capital controls.

Subject Area

Economics|Finance|Public administration

Recommended Citation

Nembhard, Jessica G, "Capital controls and long-term economic growth" (1992). Doctoral Dissertations Available from Proquest. AAI9305875.