| Summary: | "This paper focuses on the coordination problem among borrowing countries imposing controls on capital inflows. In a simple model of capital flows and controls, the authors show that inflow restrictions distort international capital flows to other countries and that, in turn, such capital flow deflection may lead to a policy response. They then test the theory using data on inflow restrictions and gross capital inflows for a large sample of developing countries between 1995 and 2009. Their estimation yields strong evidence that capital controls deflect capital flows to other borrowing countries with similar economic characteristics. Notwithstanding these strong corss-border spillover effects, they do not find evidence of a policy response."--Abstract.
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