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Document Type

International Studies and Languages

Abstract

In this paper, I analyze the ways that capital controls affect growth and economic development in developing countries and emerging market economies and use the historical evidence of Chile and Argentina to demonstrate how countries may experience the effects of capital controls in different proportions. I then review additional academic literature and historical evidence in Chile and Argentina to determine what factors seem to determine the success or failure of capital control strategies. I find two influential factors in the determination of whether implementation of capital controls helps or hurts economic growth and development. The first is whether capital controls are focused on controlling capital outflows or capital inflows; controls on outflows are found to be primarily ineffective, even harmful, whereas controls on inflows are more likely to succeed. The second major factor is whether or not a country has international support from major international bodies and institutions. Finally, I conclude that although capital controls can inhibit economic growth, removal of controls should be done cautiously and with special attention paid to the country’s institutional strength and international backing. Until the country has the latter two, capital controls on inflows rather than outflows may provide stability and insulation for the country.

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