Abstract: Following the Asian crisis of the late 1990's, there has been a renewed interest in the role of capital controls in developing countries within both policy and academic circles. The reasons for this interest are not hard to find. Even strong proponents of capital account liberalization have acknowledged that many countries that avoided the worst effects of recent financial crises were also those that used capital controls, including China, India, Malaysia and Chile. Consequently, prominent mainstream economists and even the IMF have relaxed their insistence that immediate capital account liberalization is the best policy for all countries in all circumstances (IMF 2000, Fischer 2002) Adding momentum to the discussion over the last several years, a number of highly respected economists have actively argued in favor of capital controls (e.g. Bhagwati 1998, Stiglitz 2002, Krugman 1998, Rodrik 1998), adding their voices to the many heterodox economists who have argued for controls for many years (e.g. Crotty and Epstein 1996, Pollin 1998, Felix 2001, Grabel 2002).

Despite this apparent increase in the tolerance for capital controls, most mainstream academic and policy economists remain quite skeptical about the viability and desirability of controls, at least in two specific senses. Whatever increased tolerance for capital controls exists applies to controls on inflows, not on outflows. Moreover, controls on inflows are generally seen as a “temporary evil,” useful only until all of the institutional pre-requisites for full financial and capital account liberalization are in place.

Regardless of economists' misgivings, many countries nevertheless employ capital controls of various kinds to achieve important policy goals. Our study presents intensive case studies of seven developing countries that maintained a variety of controls over capital inflows and outflows during the 1990s (Epstein, Grabel, Jomo 2003).