Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns

Joshua Aizenman, Gurnain Kaur Pasricha

Research output: Contribution to journalArticlepeer-review

38 Scopus citations


In this paper, we provide empirical evidence on the factors that motivated emerging economies to change their capital outflow controls in the recent decades. Liberalization of capital outflow controls can allow emerging market economies (EMEs) to reduce net capital inflow (NKI) pressures, but may cost their governments the fiscal revenues that external financial repression generates. Our results indicate that external repression revenues in EMEs declined substantially in the 2000's compared with the 1980's. In line with this decline in external repression revenues and their growth accelerations in 2000's, concerns related to net capital inflows took predominance over fiscal concerns in the decisions toliberalize capital outflow controls. Emerging markets facing highvolatility in net capital inflows and higher short-term balance sheet exposuresliberalized outflows less. Countries eased outflows more in response to higher stock price appreciation, higher appreciation pressures in the exchange market and higher real exchange rate volatility. Non-IT monetary policy regimes also liberalized outflows more in response to greater reserves accumulation and higher NKI.

Original languageEnglish
Pages (from-to)28-64
Number of pages37
JournalJournal of International Money and Finance
StatePublished - 1 Dec 2013
Externally publishedYes


  • Capital controls
  • Capital inflows management
  • Revenues from financial repression

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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