Capital Control and Latin America Growth. The Experience of 90's Decade

67 Pages Posted: 6 Dec 2001

See all articles by Leonardo Cruz Basso

Leonardo Cruz Basso

Mackenzie Presbyterian University - Business Administration

Fernando Martha Pinho

Universidade Mackenzie

Marcelo Roque da Silva

Universidade Presbiteriana Mackenzie; Universidade do Grande ABC (UniABC)

Abstract

The object of the present work was the study of the macroeconomics behavior in the decade of 90, of the economies of Brazil, Argentina, Chile, Colombia and Mexico concerning the process of a larger liberalization of the controls of capitals. Due to several disastrous unfoldings that happened in the referred economies in the decade of 80, several currents of economic thought have been fighting a profitable intellectual debate concerning the cause-effect relationships arising out of the adoption (or not) of capital controls in times of crisis.

The difference among them is that Mexico and Argentina opted for a total liberation of the flow of capitals, while Brazil, Chile and Colombia adopted controls when necessary. For the analyzed economies, the results show that the countries can obtain growth of the respective gross domestic products so much in the presence of control of capitals as in the absence of controls. Some economists argue that controls are harmful because in the absence of them the economies could recover and grow at higher rates, but we are pleased to see Latin-American countries grow at least, even with some capital controls. The structure of the argument is sustained by the facts that occurred in the Asian crisis of 1998, when it was evidenced that Malaysia, a country that opted for adopting capital controls succeeded in bringing the economy back to the path of growth.

This work would be incomplete without a comment on James Tobin's proposal, denominated Tobin Tax, present by the prominent economist in 1972, whose basic premise is based in the statement that the short run capital flows are responsible for the high volatility of the exchange rates, and that the imposition of uniform tribute applied over all operations of the exchange markets would allow the decrease of speed of circulation of the problematic short run capital flows. The adoption of such a fiscal instrument could work as a complementary mechanism or even a substitute in relation to the traditional systems of capital controls.

The present study suggests more deepened analyses to validate the conclusions obtained regarding this polemic theme.

Suggested Citation

Cruz Basso, Leonardo and Pinho, Fernando Martha and Roque da Silva, Marcelo, Capital Control and Latin America Growth. The Experience of 90's Decade. Available at SSRN: https://ssrn.com/abstract=289483 or http://dx.doi.org/10.2139/ssrn.289483

Leonardo Cruz Basso (Contact Author)

Mackenzie Presbyterian University - Business Administration ( email )

Rua da Consolacao, 896 7 - andar sala 73
01302-907 Sao Paulo
Brazil
+55 11 32368597 (Phone)
+55 11 32368600 (Fax)

Fernando Martha Pinho

Universidade Mackenzie

Rua Itambe, 367, apto. 64 - Higienopolis
01302-907 Sao Paulo
Brazil
+55 257-3639 (Phone)

Marcelo Roque da Silva

Universidade Presbiteriana Mackenzie ( email )

Rua da Consolação, 930
CEP 01302-907 São Paulo
Brazil
55-11-3236-8634 (Phone)
55-11-3236-8635 (Fax)

Universidade do Grande ABC (UniABC) ( email )

09080-511
Brazil
5034-7996 or 5034-4249 (Phone)

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