The massive surge in capital inflows to emerging market economies (EMEs) following the 2008 global financial crisis has reignited the debate on the pros and cons of international capital mobility. While free movement of capital across borders can reduce the cost of capital, enable investments and allow investors to diversify their portfolio, it can also pose significant systemic risks in the recipient country with negative consequences for growth and development.

Large capital inflows in excess of domestic absorption capacity could…

Capital controls are back in fashion. In the aftermath of the 2008 global financial crisis, there is a renewed interest in capital controls as useful policy tools to prevent or mitigate financial crises. It is increasingly being acknowledged in policy circles that capital controls could insulate the domestic economy from volatile capital flows, due to the limited effectiveness of other policy measures (such as sterilization of capital flows and accumulation of foreign reserves). As many complexities are surrounding the…