By Kevin P. Gallagher and Leonardo E. Stanley
September 2012 (8 pages)
In the wake of the global financial crisis, many economists and policymakers are advocating the use of regulations to control the cross-border flows of capital. However, such capital account regulations (known as CARs) often are limited or prohibited by commonly-used provisions in trade and investment treaties. This policy brief describes the outcomes of a “compatibility review” between the ability to implement capital account regulations and standard provisions of the global trading system. It argues that changes should be made so that the two systems are more compatible, providing countries – especially developing countries – with the policy space to employ CARs to stabilize their economies and stave off boom-and-bust cycles and still participate in bi-lateral and multi-lateral trade and investment treaties.
This review was conducted at a workshop of the Pardee Center Task Force on Regulating Capital Flows for Long-Run Development held in June 2012 at the Center for the Study of State and Society (CEDES) in Buenos Aires, Argentina. The workshop was co-sponsored by the Pardee Center, CEDES, and the Global Development and Environment Institute (GDAE) at Tufts University, with support from the Ford Foundation. A Pardee Task Force Report that provides an in-depth examination of the issues discussed in this policy brief is scheduled for publication in 2013. More information from the Task Force on Regulating Global Capital Flows is available here.
Kevin P. Gallagher is Associate Professor of International Relations at Boston University and Pardee Center Faculty Fellow, and a Research Fellow at GDAE.
Leonardo E. Stanley is Associate Researcher in the Department of Economics at the Center for the Study of State and Society in Buenos Aires, Argentina.