THE OBSOLESCENCE OF CAPITAL CONTROLS - ECONOMIC MANAGEMENT IN AN AGE OF GLOBAL MARKETS

Between the late 1970s and the early 1990s, after decades of trying to limit short-term international capital movements, advanced industrial states moved decisively in the direction of decontrol. What has drive n this remarkable policy convergence? The answer lies not in ideologic al change or shifts in relative political power, but in the prior deve lopment of international financial markets and in the increasing globa lization of business. In a policy environment fundamentally reshaped b y these factors, financial institutions and multinational firms were a ble to threaten or implement strategies of evasion and exit. Thus, the usefulness of controls declined as their effective costs rose sharply . In this light, the cases of Japan, Germany, Italy, and France are ex amined. The analysis points to the tightening link between short-term capital movements and foreign direct investment, issues that have long been treated as conceptually distinct. It also underlines the intrica te connection between national policies governing capital movements an d those aimed at managing international markets.