Spillover Effects Of Capital Controls: A Critical Review And New Agenda For The Future Directions

This study undertakes a critical review of the spillover effects of capital controls and their welfare implications. We provide a synthesis of the literature on both the theoretical and empirical literature on the spillover effects of capital controls. Furthermore, the role of similar economies (geographical region, and economic haracteristics), directionspecific capital controls, Global Financial Crisis, asset-specific capital controls and the compositional effect of capital flows are discussed to explore the degree and extent of spillover effects of capital controls policy. Similarly, the welfare implications of capital controls depend on the policy motive behind the imposition of capital controls, the state of coordination between the source and destination countries, and among the destination countries. Our study indicates that the imposition of capital controls should be flexible, competitive or prudential and should take into account domestic conditions and circumstances. Also, there is a need for complementarity between conventional macroeconomic policies and capital control actions, and multilateral coordination between source and capital-receiving countries.