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How do capital controls affect international trade?

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  • Fu, Dahai
  • Cao, Li

Abstract

Trade effects of capital controls have not been thoroughly examined empirically. Using a new dataset of capital controls on both inflows and outflows, we study the impact of capital controls on international trade by augmenting the gravity model with capital controls. The results consistently show that capital controls are correlated more with exports rather than imports. Inward capital controls reduce exports, while outward capital controls promote exports.

Suggested Citation

  • Fu, Dahai & Cao, Li, 2020. "How do capital controls affect international trade?," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519303829
    DOI: 10.1016/j.econlet.2019.108761
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    References listed on IDEAS

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    1. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
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    Cited by:

    1. Mianshan Lai & Jia Hou, 2023. "Let us misinvoice more? The effect of de jure capital controls on trade misinvoicing," The World Economy, Wiley Blackwell, vol. 46(7), pages 2157-2186, July.
    2. Kitano, Shigeto & Zhou, Yang, 2022. "Effects of China’s capital controls on individual asset categories," Finance Research Letters, Elsevier, vol. 49(C).
    3. Abdoul Rachid Issoufou Dogo, 2024. "Impact de l'intégration financière régionale sur le commerce intra régional des produits manufacturés dans la zone CEDEAO," African Development Review, African Development Bank, vol. 36(2), pages 292-305, June.
    4. Ndubuisi, Gideon, 2020. "Fettered cross-border capital flows, external finance dependence, and international trade," International Economics, Elsevier, vol. 164(C), pages 206-216.
    5. Carlos Chavez, 2024. "Estimating the Effects of Financial Liberalisation on Governability and Social Stability," Foreign Trade Review, , vol. 59(4), pages 588-614, November.

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    More about this item

    Keywords

    Capital controls; International trade; Gravity model;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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