Capital-importing countries receive less FDI and grow more slowly with capital controls while capital exporters are unable to invest in high-yielding securities and consequently see lower returns on savings.

COSTS AND DISTORTIONS

Just like a country’s trade balance - which records the value of merchandise exports and imports - international purchases and sales of financial and real assets are recorded in what is termed the capital account of the balance of payments.

Moreover, capital controls undermine economic efficiency because productive resources are prevented from being utilised where they are needed most. In 1998, Professor Paul Krugman wrote an open letter to Malaysia’s former prime minister, Mahathir Mohamad, arguing that restrictions do lasting damage when forced to defend inconsistent policies that produce an Over-valued’ currency.

posted by Administrator at 1:02 pm & filed under Dollars |