Capital Controls as Quasi-Adjustments
A basic deficit can be reduced by restricting debits on capital and transfer accounts provided that these measures do not automatically engender fully offsetting feedback mechanisms. Since restrictions of this kind do not directly cause resource reallocation and changes in relative real incomes through their effect upon the competitive ratio, the restrictions are quasi-adjustments. However, these quasi-adjustments are less likely to suffer from retaliatory offsets than their current-account equivalents. Not all restrictions on the export of capital owe their existence to balance-of-payments strains, and some policies biasing the direction of investment can, like tariffs and quotas, exist purely in the national interest.
KeywordsDirect Investment Foreign Exchange Competitive Ratio Trade Credit Foreign Asset
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