Capital Controls And International Trade: An Industry Financial Vulnerability Perspective

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Journal Of International Money And Finance


Capital control policies have consequences on economic growth and international trade. Using data on 99 countries from 1995–2014, we find evidence that the effect of capital controls on trade vary across industries that have differing levels of external financing and asset tangibility. For exporter countries that tighten capital controls, industries that rely more heavily on external financing experience a larger decline in exports, while industries that possess more tangible assets experience a smaller decline in exports. For importer countries, tighter capital controls imply a decrease in trade, and this effect is uniform across all industries. The pattern with respect to external financing persists after accounting for availability of domestic credit and the differences in industry shares, and are predominantly found in countries with low levels of financial development. On the other hand, the varying effect related to asset tangibility is mostly absorbed by domestic credit market.

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