TY  - JOUR
AU  - Wei,Shang-Jin
AU  - Zhang,Zhiwei
TI  - Collateral Damage: Exchange Controls and International Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13020
PY  - 2007
Y2  - April 2007
UR  - http://www.nber.org/papers/w13020
L1  - http://www.nber.org/papers/w13020.pdf
N1  - Author contact info:
Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu

Zhiwei Zhang
Nomura Securities
Hong Kong
E-Mail: zhiweiz@hotmail.com
M2  - featured in NBER digest on 2007-12-01
AB  - While new conventional wisdom warns that developing countries should be aware of the risks of premature capital account liberalization, the costs of not removing exchange controls have received much less attention. This paper investigates the negative effects of exchange controls on trade. To minimize evasion of controls, countries often intensify inspections at the border and increase documentation requirements. Thus, the cost of conducting trade rises. The paper finds that a one standard-deviation increase in the controls on trade payment has the same negative effect on trade as an increase in tariff by about 14 percentage points. A one standard-deviation increase in the controls on FX transactions reduces trade by the same amount as a rise in tariff by 11 percentage points. Therefore, the collateral damage in terms of foregone trade is sizable.
ER  -