Date of Degree


Document Type


Degree Name





Sangeeta Pratap

Committee Members

Merih Uctum

Chun Wang

Subject Categories

International Economics | Macroeconomics


International Investment, Long-term Capital Movements, Capital Account Adjustment, Short-term Capital Movements, International Financial Policy, Capital Controls


This dissertation consists of three chapters. In Chapter One, we review the literature on the economic consequences of capital controls. Capital controls are advocated as second-best policy in the presence of a pecuniary externality. Restricting capital inflows as a prudential tool during economic booms may distort the efficient allocation of capital but it invokes precautionary saving behavior so that agents do not overborrow. The financial crises that are fueled by capital market distortions can be mitigated by the use of prudential capital controls, heightened during the boom and released during the bust. The empirical evidence on capital controls has revealed that they are useful for pushing the maturity composition of capital flows toward the long-term end, generating monetary independence through interest rate differentials, reducing the share of bank loans denominated in foreign currencies, improving economic resilience, and to a lesser extent, reducing exchange rate pressures. There is a small but growing body of evidence that capital controls incur high costs for firms and can cause spillovers at the country level heeding calls for coordination.

In Chapter Two, we evaluate financial stability and cash flows management objectives of capital controls in the context of four capital control events: removing or imposing controls on capital inflows and removing or imposing controls on capital outflows. Using the synthetic control method, we solve the endogeneity problem between the decision the use capital controls and the outcomes of interest. We find new evidence that capital controls are not consistently effective in reaching financial stability outcomes but are consistent in reaching cash flows management outcomes. We compare our results to estimates using difference-in-difference and carry out placebo analysis.

In Chapter Three, I evaluate the effect of short-term capital controls on direct investment. Capital controls remain a common approach to capital flows management. Meanwhile, the IMF has revised its position regarding selective use capital controls. However, the effects of granular variation in capital controls by asset category and direction of flow are not fully documented. Using a new dataset on capital control measures, I find that countries using capital controls on short-term capital inflows receive a higher level of direct investment inflows, and that this effect is decreasing in the country's growth rate. I show that this result is consistent with the interpretation that the capital control serves as a signal of stability in slower-growing countries.