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The political economy of capital controls

Alesina, A., Grilli, V. and Milesi-Ferretti, G. (1993) The political economy of capital controls. CEPDP (169). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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This paper studies the institutional and political determinants of capital controls in a sample of 20 OECD countries for the period 1950-1989. One of the most interesting results is that capital controls are more likely too be imposed by strong governments which have a relatively "free" hand over monetary policy, because the Central Bank is not very independent. By imposing capital controls, the governments raise more seigniorage revenue and keep interest rates artificially low. As a result, public debt accumulates at a slower rate than otherwise. This suggests that an institutional reform which makes the Central Bank more independent makes it more difficult for the government to finance its budget. The tightening of the fiscal constraint may force the government to adjust towards a more sound fiscal policy. We also found that, as expected and in accordance with the theory, capital controls are more likely to be introduced when the exchange rate is pegged or managed. On the contrary, we found no effects of capital controls on growth: we reject rather strongly the hypothesis that capital controls reduce growth.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 1993 the authors
Divisions: Centre for Economic Performance
Subjects: J Political Science > JA Political science (General)
H Social Sciences > HJ Public Finance
Date Deposited: 19 Aug 2008 10:11
Last Modified: 16 May 2024 11:17

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