Capital Controls Research Articles

Effects of China’s capital controls on individual asset categories

We empirically assess the effects of China’s capital controls on individual asset categories by using the local projection method. Our results show stark differences among individual asset categories. Capital controls on equity and financial credits affect the corresponding net inflows significantly, whereas those on the other three asset categories (bonds, commercial credits, and direct investment) do not.

Dampen macroeconomic volatility: a useful role of capital controls on international trade

ABSTRACT Capital controls may adversely affect international trade. This study aims to demonstrate the usefulness of capital controls for reducing macroeconomic volatilities and then mitigating their negative effects on international trade. Using quarterly data, we applied a dynamic panel approach to a sample of 26 countries over the period 2010–2020. By diversifying the estimation techniques and using different capital control indexes, our results show that a capital control policy supports international trade and reduces exchange rate and interest differentials volatilities. The impact of capital controls is asymmetric when considering the role of financial development, the cyclical behavior of capital controls, and the simultaneous use of macroprudential policies. This study raises some policy implications, particularly, the necessary coordination and adjustment of the macroeconomic policies and the importance of targeting long-lasting controls when applying a restrictive policy.

Analisis Faktor Yang Mempengaruhi Kualitas Laporan Keuangan Pada Pelaku UMKM di Kota Bengkulu

This study aims to determine the factors that affect the quality of financial reports for MSME actors in Bengkulu City based on the Financial Accounting Standards for Micro, Small and Medium Entities (SAK EMKM) which are the current financial reporting standards for MSMEs. Bookkeeping of business activities is a financial report that separates business assets from non-business assets, there are still many MSME actors who have not made books in accordance with standards. In general, MSME actors keep simple financial records so that these records do not reflect the actual financial status of the business. Many MSME actors are still negligent in preparing their business financial statements, making it difficult to get financing from banks. Financial reports are needed to determine the company's profit or loss, assets, liabilities, and capital control, as well as planning for the efficiency of expenditures that occur, all of which act as decision-making tools for business development. The study used three independent variables, namely Education Level (X1), Business Scale (X2), Business Length (X3), and one dependent variable, namely the quality of financial reports. The sample of MSMEs studied were MSMEs in Singaran Pati District, Bengkulu City with a total population of 344 MSMEs. The results of the study show that the variables of education level, business scale and length of business are factors that affect the quality of financial reports for MSME actors in Bengkulu City. From the results of the analysis of data testing on these 3 variables, the MSA value for education level has an MSA value of 0.683, Business scale has an MSA value of 0.698, and the length of business has an MSA value of 0.674.

Implicit government guarantees and bank risk

We develop a model on bank risk and implicit government guarantees. This model concerns the willingness and capacity of implicit government guarantees. Using the Option Pricing Theory, we derive a mathematical formulation of maximizing the bank’s net present value (NPV) with implicit government guarantees. Unlike previous work, both the loan portfolio and the bank’s NPV are regarded as a combination of options underlying the risky project. We conduct comparative static analyses and numerical examples to examine how implicit government guarantees and capital control affect bank risk and its asset scale. The main insight of our analysis is that implicit government guarantees have some unintended consequences: (a) Inefficient and excessive risk taking (including bank’s asset and overall risk); (b) Inefficient investment if there is no binding capacity constraint. We show that it is mainly due to the bank's excessive reliance on contingent assets. In addition, we demonstrate the ineffectiveness of capital constraint on risk control under certain circumstances. Therefore, we suggest that the gradual withdrawal of implicit government guarantees should be accompanied by multiple combinations of regulatory measures and proper institutional reform to avoid risk surges.

Capital Account Liberalization Indices: A Review of Literature

The complexities of the global financial system have been increasing and the same is managed by implementation of capital controls by the nations. Therefore, it is important to understand what controls are and how the nations implement them. The aim of this paper is to analyze and understand the capital controls indices developed so far to measure financial openness or liberalization. Broadly the measures developed so far are categorized into de facto, de jure and hybrid measures. Each measure constructed has used different scale and hence the intensity and description of each measure is different also they cover different countries.

Policies Supporting Firms in the Face of Global Financial Shocks

This paper studies the empirical impact of Foreign Assets Management (FAM) on companies’ capital expenditure in emerging market economies with International Financial Shocks (IFS). The empirical analysis uses annual data of 2,931 publicly listed companies in 45 emerging market economies from 2000 to 2019. We analyzed a multiplicative regression of a canonical capital expenditure Q model. The findings show that FAM positively affects companies’ capital expenditure. Moreover, financially restricted companies are more sensitive to the favorable impact of FAM compared to restricted companies. Our results highlight the relevance of considering companies’ heterogeneity when examining the effect of macro-management policies. In addition, FAM has a more favorable impact on companies’ capital expenditure in economies that concurrently use capital controls and macroprudential policy. Finally, our findings suggest that successful macro-management policies insulate capital expenditure from adverse IFS. This result highlights the role of more coordinated approaches to repel adverse international shocks.

A new approach to capital control for emerging market economies

The present paper proposes a new approach to capital control for emerging market economies, which restricts capital inflows to a fraction of the gap between foreign currency denominated loans and deposits in the economy. We show that the foreign-currency-gap capital control proposed here outperforms tax-based capital control in attenuating the negative effects of external shocks on business cycle fluctuations. This attenuation effect works via the interest rate channel and the capital control constraint itself. Compared to tax-based capital control, the foreign-currency-gap capital control is welfare enhancing, effectively mitigating financial instability with little cost in terms of macroeconomic stability. Countries with a high level of foreign currency denominated loans and deposits need to implement a stricter foreign-currency-gap capital control.

Macro‐management policies: A supporting role to company' capital expenditure

AbstractThis article studies the empirical impact of Foreign Assets Management (FAM) on companies' capital expenditure in emerging market economies with International Financial Shocks (IFS). The empirical analysis uses annual data of 2931 publicly listed companies in 45 emerging market economies from 2000 to 2019. We analyzed a multiplicative regression of a canonical capital expenditure Q model. The findings show that FAM positively affects companies' capital expenditure. Moreover, financially restricted companies are more sensitive to the favourable impact of FAM compared to restricted companies. Our results highlight the relevance of considering companies' heterogeneity when examining the effect of macro‐management policies. In addition, FAM has a more favourable impact on companies' capital expenditure in economies that concurrently use capital controls and macroprudential policy. Finally, our findings suggest that successful macro‐management policies insulate capital expenditure from adverse IFS. This result highlights the role of more coordinated approaches to repel adverse international shocks.

House price, credit supply, and government policy in China

Abstract. House prices in China have risen rapidly since 2000, accompanied by rapid credit expansion and falling interest rates on loans. This paper compares the stabilization effects and welfare implications of five policies on China's housing and credit markets. Three policies directly target the housing and credit markets: bank capital requirements, loan‐to‐value regulation and a property tax rule. Two broader policies are also considered: the reduction of capital controls and of the nominal exchange rate peg. To quantify the analysis, three prominent features of the Chinese economy—a monopolistically competitive banking sector that is subject to direct government control, a nominal exchange rate peg and capital controls—are built into a new Keynesian dynamic stochastic general equilibrium model. The model is estimated with Bayesian methods. Results show that relaxing capital controls is the most effective policy for stabilizing the credit market and the overall economy, while improving welfare. The second most effective approach is bank capital requirements, followed by a property tax rule. In contrast, loan‐to‐value regulation and a relaxation of the nominal exchange rate peg result in welfare losses to the economy.

Russia’s invasion of Ukraine: assessment of the humanitarian, economic, and financial impact in the short and medium term

What are the economic effects of the Ukraine war for Ukraine, Russia, and the rest of Europe? In this study, the Vienna Institute for International Economic Studies (wiiw) sheds light on the immediate consequences on the one hand, but also on the medium-term structural changes caused by the largest armed conflict in Europe since the Second World War. The Russian invasion of Ukraine has triggered a humanitarian crisis. Pre-war, almost 19 m people lived in those regions that are currently directly affected. Refugee inflows to the rest of Europe are likely to be at least three times greater than in 2015/2016. As Black Sea ports come under Russian assault, Ukraine has lost its ability to sell more than half of its exports, primarily agricultural commodities and metals. Western financial support will become ever more important as the war continues. Turning to Russia, sanctions will have a very serious impact on that country’s economy and financial sector. Despite being partly hamstrung by the fact that a large proportion of Russian reserve assets are frozen in the EU and G7, the central bank managed to stabilise financial markets by a combination of confidence-building and hard-steering measures: capital controls, FX controls, regulatory easing for financial institutions, and a doubling of the key policy rate. The medium-term and long-term outlook is negative. As a result of the war and the sanctions, the rest of Europe faces a surge in already high inflation; this will weigh on real incomes and will depress economic growth. Many European countries rely heavily on Russia for oil and gas imports: import shares are over 75% in Czechia, Latvia, Hungary, Slovakia, and Bulgaria with respect to natural gas; Slovakia, Lithuania, Poland, and Finland with respect to oil and petroleum; and Cyprus, Estonia, Latvia, Denmark, Lithuania, Greece, and Bulgaria with respect to solid fuels. Aside from energy, the fallout via trade for the rest of Europe is likely to be small. Non-energy trade and investment links between Russia and many European countries have declined in importance since 2013. There are four main areas of structural change and lasting impact for the EU (and Europe more broadly) as a result of Russia’s invasion of Ukraine. First, the EU will get more serious about defence. Second, the green transition will gather pace. Third, broader Eurasian economic integration will be unwound. And fourth, the EU accession prospects for countries in Southeast Europe could (and should) improve.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10368-022-00546-5.

Monitoring of PAHs (Fluoranthene and Benzo(a)Anthracene) in Ambient Air of Ghaziabad Area of National Capital Region and Control of Air Pollution by Triveni Wood

The main objective of this paper is to analyze the impacts of Fluoranthene and Benzo (a) Anthracene PAHs pollutants on the health of peoples residing in Ghaziabad area of National Capital Region. This paper gives some relevant reactions of Triveni wood in Yagya process for control of air pollution. Practical work was carried for a duration of approx. 2 years. Sampling of Fluoranthene and Benzo (a) Anthracene PAHs was carried on every fortnight and data was collected. The present study is very useful to regulatory authorities and administration to understand problems of air pollution in the concerning areas and helpful in prevention of Air Pollution. In Ghaziabad City, the sampling locations were selected based on land used pattern, i.e., residential area, commercial and industrial area during four seasons viz. summer, Monsoon, Post monsoon and Winter. Fluoranthene and Benzo (a) Anthracene level and their variation were observed during these seasons. The result of concentration of Fluoranthene and Benzo (a) Anthracene is minimum in Govindpuram residential area of Ghaziabad and maximum concentration observed in Sahibabad industrial area, which shown in Figure 1 (Results and Discussion) in year Jan 2016–Dec 2017. The conclusion of this study is that the concentration of Benzo(a)anthracene (110.1 ng/m3) found greater than Fluoranthene (98.8 ng/m3) in all sites.

The Dismantling of Capital Controls after Bretton Woods and Latin American Productivity

The recent economic history of global integration has been characterized by a dismantling of capital controls and increased foreign direct investment (FDI). This paper explores the role of impediments to international capital mobility, foreign direct investment, and technology diffusion in shaping Latin American economic growth. First, the paper summarizes and quantifies the effects of the Bretton Woods international financial system in Latin America. Then, I study the consequences of capital controls--and their dismantling--on FDI and trade-induced technological advancements and their role in shaping local development, especially in the 1990s after the implementation of several trade liberalization policies.

Research on the Differences in the Value Correlation of Accounting Data Under the Background of COVID-19

In today's highly developed world of financial globalization, international capital flows in my country and the entire Asia-Pacific region are gradually increasing. The stock market is an important part of the capital market. The stock market has gradually improved its capital liquidity. With the improvement of the investment environment in the international capital market and the gradual relaxation of capital controls, with the development of the "Belt and Road" development concept, Thailand has gradually chosen to buy and sell shares of Chinese investors. What investors need to consider is how to achieve capital appreciation. Investors need to consider how to achieve capital appreciation. However, a sudden new crown pneumonia epidemic broke the peace and excitement that the New Year should have, and also brought a great impact on the stock market. Of course, the stock market is affected by many factors. There are some problems here, such as the experience of the Chinese stock market.

Crypto-assets, corruption, and capital controls: Cross-country correlations

Empirical investigation of the factors underlying the growing usage of crypto-assets is in its infancy, owing to data limitations. In this paper, we present a simple cross-country analysis drawing on recently released survey-based data. We explore the correlation of crypto-asset usage with indicators of corruption, capital controls, a history of high inflation, and other factors. We find that crypto-asset usage is significantly and positively associated with corruption and capital controls. Notwithstanding the data limitations, the results support the case for regulating crypto-assets, including know-your-customer approaches, as opposed to taking a laissez-faire stance.

Macroprudential Policy, Financial Crisis, and Macroeconomic Policy (Case Study In 5 Asean Countries)

This study will examine two aspects, the first is the impact of macroprudential policy on the potential for a financial crisis, then the link between macroprudential policy and macroeconomic policy (monetary policy, exchange rate regime and capital control). This research will involve 5 (five) ASEAN countries as samples, namely Indonesia, Malaysia, Thailand, Vietnam and Singapore. The data used are annual data starting from 2004 to 2020. The variable used in this study is the loan-to-value (LTV) variable as a variable that describes macroprudential policy, then GDP growth rate, income per capita, inflation rate (consumer price). index), and changes in monetary policy (real interest rate). The analytical tool used in this research is the probit model. The results showed that macroprudential policies had an effect on controlling the financial crisis. Macroprudential policy is considered effective in avoiding a banking crisis by suppressing credit growth. In other words, it is found that a tightening of the LTV ratio is significantly associated with a lower probability of a banking crisis Keywords: macroprudential policy, monetary policy, exchange rate regime and capital control. DOI: 10.7176/JESD/13-7-08 Publication date: April 30 th 2022

Article: The Need for Global Minimum Tax: Assessing Pillar Two Reform

In 2021, the Organisation for Economic Co-operation and Development (OECD) announced its proposal to introduce a global minimum tax. This proposal signals that Base Erosion and Profit Shifting (BEPS) program achieved limited success and tax avoidance continues as some countries tax at low or zero tax rates. This article reviews the existing international tax rules to demonstrate that their inefficient design is among the key factors that have compelled developed countries to support a global minimum rate. In contrast to the previous approach where the OECD identified harmful tax practices, pillar two seeks to address tax competition. In doing so tax rates and incentives will be re-calibrated so as to ensure that a corporation pays 15% in each jurisdiction. For this the rules allow the residence countries to tax back the difference between the minimum and effective tax rate (ETR). The design of the rules indicates that developing countries will not gain tax revenues from this proposal. A more important point for developing countries to consider is that tax structures depend on regulation and structure of the economy. This article presents evidence to suggest that countries must weigh their overall economic objectives against the minimum tax. Minimum tax, CFC, BEPS, incentives, capital controls

Study on the Misconduct of the Fandom under the Control of Capital

With the development of the network and idol culture, “fandom” culture has gradually emerged. However, in this era of consumerism, strong involvement of capital has manipulated fandoms with an invisible hand, causing many chaos and seriously affecting the social order. Some undesirable phenomena been commonly seen in other circles of society, bringing life impact to others. To solve the negative problems in fandoms, we must find the root cause behind the proliferation of the problem, collaborate to establish rules and boundaries, cut off the illegal industrial chain behind “fandom” culture, and then build organized fan clubs and show positive energy in society.

Cryptocurrency price discrepancies under uncertainty: Evidence from COVID-19 and lockdown nexus

The past decades have witnessed recurrent price discrepancies in cryptocurrency markets across countries. In addition to prior explanations that generally attribute this phenomenon to domestic capital controls during normal periods, we provide another explanation that investors perceive cryptocurrency as an alternative (hedging) investment, especially under uncertainty. Using the emerging of the COVID-19 pandemic in 2020 and the subsequent lockdown policies implemented by a group of countries as natural experiments, we adopt a difference-in-difference framework to examine how the nexus affects Bitcoin price discrepancies. We find that price discrepancies are larger in countries with confirmed cases of COVID-19 and rigorously implementing lockdown policies. We then verify our “alternative investment” hypothesis on the mechanism by showing that countries with intensified exposure to media hype on COVID-19 topics and with more panic emotion among citizens during the pandemic generally experienced larger Bitcoin price discrepancies than their counterparts. We also find that domestic capital control, sanitary policy stringency, uncertainty aversion, individualistic culture, and governmental power could moderate the general effect.

Currency Carry Trade by Trucks: The Curious Case of China’s Massive Imports from Itself

AbstractWith capital controls, the standard financial market transactions needed for currency carry trade are hard to implement. Using detailed trade data reported by both the mainland Chinese and Hong Kong’s governments, we present evidence that indirect currency carry trade likely takes place via round-trip reimports. We also show that greater state control in terms of more state-owned firms does not reduce such “carry trade by trucks.”

Effects of Capital Control Actions on Cross-Border Trade

The evidence that capital controls adversely affect cross-border trade is debatable. This study proves that capital controls may support international trade by mitigating the negative effect of macroeconomic volatility. We use quarterly data from a sample of 25 emerging countries over the period 2011-2019. Using long- and short-standing capital controls dynamic panel models, and diversifying robust estimations techniques, our results show that capital controls alleviate the adverse effect of the exchange rate, interest rate differential, and inflation volatilities. The long-lasting capital controls «walls» are more effective than short-lasting capital control «gates». Besides, the effects of these controls are asymmetric regarding the financial development level and category of flows for which are applied, inflows or outflows. The study highlights the beneficial role of the macroprudential policy in supporting capital control actions. The results of this study have two main policy implications, the effectiveness of ‘walls’ controls and the importance of macroeconomic policy coordination.