DP2754 Did the Malaysian Capital Controls Work?

Author(s): Ethan Kaplan, Dani Rodrik
Publication Date: April 2001
Keyword(s): Capital Controls, Malaysia
JEL(s): F30, O57
Programme Areas: International Macroeconomics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2754

Malaysia recovered from the Asian financial crisis swiftly after the imposition of capital controls in September 1998. The fact that Korea and Thailand recovered in parallel has been interpreted as suggesting that capital controls did not play a significant role in facilitating Malaysia’s rebound. However, the financial crisis was deepening in Malaysia in the summer of 1998, while it had eased up significantly in Korea and Thailand. We employ a time-shifted differences-in-differences technique to exploit the differences in the timing of the crises. Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market.