Capital Controls

Rawi E. Abdelal; Laura  Alfaro

Background Note | HBS Case Collection | April 2002 (Revised September 2002)

Capital Controls

Abstract

Only in the waning years of the 20th century did international financial markets begin to enjoy the freedom from government regulation that they had experienced before the first world war. By 2002, international capital markets had grown to be enormous--$1.2 trillion flowed around the globe per day. The massive size of the market presented policy makers with a serious challenge as they were forced to grapple with the costs and benefits of such mobile capital. This note briefly relates the modern history of capital controls and summarizes scholarship on the advantages and disadvantages of international financial market regulation.

Keywords: History; Policy; Business and Government Relations; Change Management; Cost vs Benefits; Governance Controls; Governance Compliance; Emerging Markets; Financial Markets; Network Effects; Banking Industry; Financial Services Industry;

Format: Print

4 pages

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Citation:

Abdelal, Rawi E., and Laura Alfaro. "Capital Controls." Harvard Business School Background Note 702-082, April 2002. (Revised September 2002.)

In the first months of 2020, a pandemic overwhelmed the world. COVID-19, commonly known as the coronavirus, spread from China and created a severe public health emergency across countries. While an immediate fear of the disease’s impact on human life permeaacted society, the world battled another concern for the severe economic downturn that was brought about by attempts to suppress the virus. World trade, tourism, capital flows, remittances, and commodity prices collapsed. Prior to the coronavirus outbreak, the global GDP growth rate for 2020 was expected to be close to 2.3%. As of April 2020, multilateral organizations estimated that GDP would contract by 3%—way worse than the 0.1% contraction of 2009, and the deepest dive since the Great Depression. What policy options existed to mitigate the financial and economic distress of containment, and what factors did different countries weigh in deciding which paths to choose? Was there a terrible choice—either damage livelihoods through extended lockdowns, or sacrifice thousands or even millions of lives to the virus—or were policies reinforcing? What was the role of government, businesses, communities and individuals? After the worst of the health crisis was mitigated, what kind of shape would world economies take?

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