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Capital controls were an integral part of the Bretton Woods system which emerged after World War II and lasted until the early 1970s. This period was the first time capital controls had been endorsed by mainstream economics. Capital controls were relatively easy to impose, in part because international capital markets were less active in ...
Prudential capital controls are typical ways of prudential regulation that takes the form of capital controls and regulates a country's capital account inflows. Prudential capital controls aim to mitigate systemic risk , reduce business cycle volatility, increase macroeconomic stability, and enhance social welfare .
As capital controls are reduced, the modern world has begun to look a lot less like the world modelled by Heckscher and Ohlin. It has been argued that capital mobility undermines the case for free trade itself, see: Capital mobility and comparative advantage Free trade critique. Capital is mobile when: There are limited exchange controls
Traditionally, covered interest rate parity (CIRP) was found to hold when there is open capital mobility and limited capital controls, and this finding is confirmed for all currencies freely traded in the present day. One such example is when the United Kingdom and Germany abolished capital controls between 1979 and 1981.
The system of imperialism produced economic conditions particularly amenable to the movement of capital according to the assumptions of classical economics. Britain, for instance, was able to design, impose, and control the quality of institutions in its colonies to capitalize on the high returns to capital in the new world. [7]
The existence of an elite or ruling class which controls the country, exploiting the working population in the technical Marxist sense. This idea is based on passages from Marx, where Marx emphasized that capital cannot exist except within a power-relationship between social classes which governs the extraction of surplus-labour.
free capital movement (absence of capital controls) an independent monetary policy It is both a hypothesis based on the uncovered interest rate parity condition, and a finding from empirical studies where governments that have tried to simultaneously pursue all three goals have failed.
This theory is often set up as a competitor theory to the pecking order theory of capital structure. [2] A review of the trade-off theory and its supporting evidence is provided by Ai, Frank, and Sanati. [3] An important purpose of the theory is to explain the fact that corporations usually are financed partly with debt and partly with equity.