Capital Controls

Limits placed on the movement of capital across borders. Capital controls take various forms, including limits on foreign ownership of certain types of asset, as well as taxes on foreign currency exchanges (and other financial transaction taxes) and capital inflows. Capital controls are intended to protect the domestic economy from financial volatility, although neo-liberal theory argues that they are inefficient and costly.

Developed countries all used various forms of capital control to grow their economies and protect fledgling industries, before turning to neo-liberalism and removing these barriers from the late 1970s onwards. At the same time, IMF and other structural adjustment programs set the removal of capital controls as a key goal, ‘kicking away the ladder’ from developing countries, according to economist Ha-Joon Chang. China and India in particular have continued to use capital controls to grow their economies, however, while various South-East Asian economies re-established such controls in the wake of the 1997 financial crisis.

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