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The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets

Published online by Cambridge University Press:  13 June 2011

John B. Goodman  and
Louis W. Pauly
John B. Goodman
Affiliation:
Associate Professor at Harvard Business School
Louis W. Pauly
Affiliation:
Associate Professor of Political Science at the University of Toronto
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Extract

Between the late 1970s and the early 1990s, after decades of trying to limit short-term international capital movements, advanced industrial states moved decisively in the direction of decontrol. What has driven this remarkable policy convergence? The answer lies not in ideological change or shifts in relative political power, but in the prior development of international financial markets and in the increasing globalization of business. In a policy environment fundamentally reshaped by these factors, financial institutions and multinational firms were able to threaten or implement strategies of evasion and exit. Thus, the usefulness of controls declined as their effective costs rose sharply. In this light, the cases of Japan, Germany, Italy, and France are examined. The analysis points to the tightening link between short-term capital movements and foreign direct investment, issues that have long been treated as conceptually distinct. It also underlines the intricate connection between national policies governing capital movements and those aimed at managing international financial markets.

Type
Research Article
Information
World Politics , Volume 46 , Issue 1 , October 1993 , pp. 50 - 82
Copyright
Copyright © Trustees of Princeton University 1993

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References

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44 Pauly, Louis W., Opening Financial Markets: Banking Politics on the Pacific Rim (Ithaca, N.Y.: Cornell University Press, 1988)Google Scholar, chap. 4.

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62 Interviews with French government officials, Paris, June 1988. See also holtz, Wayne Sand and Zysman, John, “1992: Recasting the European Bargain,” World Politics 42 (October 1989).Google Scholar The government's subsequent assessment of the position of French financial firms is reported by Pierre Achard, “Le marché unique de 1992: perspectives pour les banques, les assurances, et le système financier français” (Report of the Ministries of Economy, Finance, and Privatization, December 1987).

63 Cited in Euromoney, September 1987, 143.

64 See Bauchard (fn. 55), chaps. 3, 4.

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76 Ibid., 375.

77 Ibid.

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84 Undertaken by a larger body, the study was released as Group of Ten, International Foreign Exchange Markets: A Report to the Ministers and Governors by the Group of Deputies (n.p., April 1993).

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