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Iryna LABA


Introduction. An era of intensive financial liberalization has nowadays been changed for the combination of free and regulated capital flows. More and more researchers deny an existence of strong correlation between the degree of capital account liberalization and economic growth, especially in emerging and developing countries.

Purpose. The purpose of this article is to analyze the mechanisms of the state regulation of international capital flows, often referred to as capital controls, in order to implement them into an effective macroeconomic policy in developing countries and emerging markets.

Methods. The methodology of the article is closely linked to its purpose. Methods of classification, generalization, comparative analysis and case study are used to analyse the most widely used capital control instruments, their advantages and disadvantages, similarities and differences between them

Results. The main measures and tools by which the state may influence the volume, structure and other parameters of capital inflow and outflow (especially short-term and volatile), – with the aim of stabilizing financial sector and economy as a whole, achieving sustainable economic growth and development, – are analyzed. There are numerous classifications of capital controls, but because of the variety of instruments a complete comprehensive list is hard to achieve. The article studies different instruments of quantitative and price-based state capital controls, evaluates their main characteristics as well as differences between them. It is noted that due to the weak institutions in developing countries, it is more appropriate for the latter to use price-based capital control measures that do not require intricate administration. Finally, possible implications of capital controls on monetary policy and certain macroeconomic indicators are stated.

Originality. The authors develop a detailed classification of capital controls, with their distribution by implementation tools; by types of flows, regulated; by the direction of capital flows; by level of regulation; as well as, by motives and purposes of regulation.

Conclusion. Experience of the global financial crises and the fact that countries implementing capital controls have been among the least affected by it shows that international community should not seek absolute liberalization of trade in financial assets, even in the long run. In order to take advantage of all the benefits of capital account liberalization, developing countries and emerging markets must first achieve a threshold level of institutional development. 

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