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Fettered cross-border capital flows, external finance dependence, and international trade

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  • Ndubuisi, Gideon
Abstract
The effects of capital controls on international trade have not been thoroughly examined empirically. Using bilateral industry-level export data across a large number of countries, this paper evaluates how capital controls affect exports. We identify the effect of capital controls on export activities by exploiting the variation in capital controls across countries and variation in external finance dependence across industries. While we find that capital controls adversely affect total exports, analyses of the export margins indicate that the export distorting effect of capital controls works by deterring single and multiple export market entries by exporters, reducing export intensities of exporters, and the range of goods exporters can ship to each market destination. Further analysis in the paper reveals that the export distorting effects of capital controls is invariant of whether the restriction is on inward or outward capital controls, although the relative impact of inward capital control is higher. We also find that capital controls distort exports in OECD and non-OECD countries, although the effect is higher for non-OECD countries. We discuss the policy implications of the findings.

Suggested Citation

  • Ndubuisi, Gideon, 2020. "Fettered cross-border capital flows, external finance dependence, and international trade," International Economics, Elsevier, vol. 164(C), pages 206-216.
    • Handle: RePEc:eee:inteco:v:164:y:2020:i:c:p:206-216
    DOI: 10.1016/j.inteco.2020.10.002
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    More about this item

    Keywords

    Capital control; International trade; Trade margins; External finance dependence;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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