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IMF conditionality and capital controls: Capital account liberalization to capital inflow management?

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  • Makram El‐Shagi
  • Steven J. Yamarik

Abstract

Since the end of the Bretton Woods system, promoting capital account liberalization has been one of the tenants of the IMF. Capital account liberalization was deemed one of the 10 pillars of what was often dubbed the “Washington Consensus.” Yet, things changed drastically with the Global Financial Crisis of 2008. From 2009 to 2012, comments from top IMF officials and staff reports displayed quite clearly that the IMF had revised its position where capital controls could be part of the toolkit. In this paper, we assess the role of the IMF in capital account liberalization from 1995 to 2015. We use a midpoint‐inflated ordered probit model to estimate the effects of being under IMF conditionality on capital controls, allowing for different effects for pre‐ and post‐Financial Crisis. We find that the IMF did indeed drive liberalization of capital inflows in the precrisis era, but stopped doing so in the postcrisis period.

Suggested Citation

  • Makram El‐Shagi & Steven J. Yamarik, 2021. "IMF conditionality and capital controls: Capital account liberalization to capital inflow management?," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 590-605, August.
    • Handle: RePEc:bla:reviec:v:29:y:2021:i:3:p:590-605
    DOI: 10.1111/roie.12522
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    More about this item

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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