Macro/Finance Group, NIPFP

Motivations for capital controls and their effectiveness

Motivations for capital controls and their effectiveness, Radhika Pandey, Gurnain K. Pasricha, Ila Patnaik and Ajay Shah. NIPFP Working Paper 168, April 2016.

We assess the motivations for changing capital controls and their effectiveness in India, a country where there is a comprehensive capital control system covering all cross-border transactions. We focus on foreign borrowing by firms, where systemic risk concerns could potentially play a role. A novel fine-grained data set of capital control actions is constructed. We find that capital control actions are potentially motivated by exchange rate considerations, but not by systemic risk issues. A quasi-experimental design reveals that the actions appear to have no impact either on the exchange rate or on variables connected with systemic risk.

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