Flow‐specific Capital Controls for China
Year: 2026
Type: article
Abstract: This paper studies the macroeconomic and welfare effects of flow‐specific capital controls using an asymmetric two‐country dynamic stochastic general equilibrium model calibrated to China. The framework distinguishes between inflow controls targeting entrepreneurs' external borrowing and outflow controls regulating financial intermediaries' foreign assets. Easing global financial conditions increases both capital inflows and outflows through collateral and balance‐sheet channels. The results show that flow‐specific adjustment‐cost‐based controls deliver more effective stabilization of targeted capital flows while generating much smaller macroeconomic spillovers than tax‐based controls. While flow‐specific outflow controls are welfare‐enhancing, the welfare effect of flow‐specific inflow controls is state‐dependent and varies with different shocks.
Source: China & World Economy
DOI: 10.1111/cwe.70048
Authors: Fernando Garcia‐Barragan, Guangling Liu
Institutions: Universidad de Guanajuato, Stellenbosch University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W6902622007
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