Malaysian capital controls

[Brad DeLong]

><http://papers.nber.org/papers/W8142>
>
>Did the Malaysian Capital Controls Work?
>Ethan Kaplan, Dani Rodrik
>
>NBER Working Paper No. W8142
>Issued in February 2001
>
>Malaysia recovered from the Asian financial crisis swiftly after the 
>imposition of capital controls in September 1998. The fact that 
>Korea and Thailand recovered in parallel has been interpreted as 
>suggesting that capital controls did not play a significant role in 
>facilitating Malaysia's rebound. However, the financial crisis was 
>deepening in Malaysia in the summer of 1998, while it had 
>significantly eased up in Korea and Thailand. We employ a 
>time-shifted differences-in- differences technique to exploit the 
>differences in the timing of the crises. Compared to IMF programs, 
>we find that the Malaysian policies produced faster economic 
>recovery, smaller declines in employment and real wages, and more 
>rapid turnaround in the stock market.

Yep. Looks like restricting capital outflows after the fact and 
putting your ex-deputy on trial for trumped-up charges of sexual 
perversion does *not*, repeat does *not*, discourage the return of 
foreign investors or accelerate domestic capital flight.

Score one for Krugman's point that investors should *welcome* 
controls on capital outflows as a way of binding each other not to 
run for the exits and send the system into financial collapse but to 
stick around and be "patient capital". Score zero for those committed 
to the "rationality" of money-center investors...

Brad "I can calculate the motion of heavenly bodies but not the 
madness of crowds" DeLong