Goodman, John B., & Pauly, Louis W. (1993). "The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets". World Politics, 46(1), 50-82. http://links.jstor.org/sici?sici=0043-8871%28199310%2946%3A1%3C50%3ATOOCCE%3E2.0.CO%3B2-3
“In this article, our principle aim is to address two prior puzzles: First, why did policies of capital decontrol converge across a rising number of industrial states between the late 1970s and the early 1990s? Second, why did some states move to eliminate controls more rapidly than others?” The answers to these questions are not the result of broad, ideational shifts on the part of improving the lot of capital mobility. However, these changes can be identified with broader structural changes in, “international production and financial intermediation, which made it easier and more urgent for private firms…effectively to pursue strategies of evasion and exit. For governments, the utility of controls declined as their perceived cost thereby increased” (51).
This article then goes on to outline why this conclusion is the correct one by looking at the cases of movements away from capital controls in
It is clear in this paper that, “global financial structures affect the dynamics of national policy-making by changing and privileging the interests and actions of certain types of firms” (52). This privileging of interest and actions on the domestic level can be seen clearly in the ways in which finance capital interests neglect and evade capital controls when they can. This practice of “evasion and exit” can eventually prove too costly for a country to combat. Thus, they are forced to remove their capital controls.
Initially, this article makes clear that capital controls were a part of the Bretton Woods international economic structure. They were seen as being a crucial tool that domestic economies could use to reign in capital flight and to rebuild. This was even, and still the case with the IMF Articles of Agreement in 1976.
In the 1970s, “two developments dramatically reduced the usefulness of capital controls. The first was the transformation and rapid growth of international financial markets…Just as these changes were occurring, a related development was taking place—an increasing number of businesses were moving toward a global configuration” (57). Both of these changes changed the cost benefit analysis that a nation could use when they were deciding whether or not to implement capital controls. While there were other factors that played roles in this development, these were mainly secondary roles (80).
