Effectiveness of Capital Controls: the Case of Brazil

The emerging market crises of the past decade have led some observers to question the wisdom of a completely open capital account. But even if capital controls are desirable, empirical evidence is needed to demonstrate when and under what circumstances restrictions are effective. This paper investigates this issue for Brazil. Much analysis of policy effectiveness has been conducted with vector autoregressions. The validity of policy inference based on this technique has been cast into doubt, so this paper employs a more “narrative” method, modeling flows to Brazil as ARMAX processes. This approach yields the interesting result that controls can be effective when the reaction of financial market participants to restrictions is taken into account, and derivatives and debt market activities curtailed.     

Cultural Fit and the Choice of International Market Entry Scale of Chinese Firms

Previous research on how cultural distance impacts the choice of entry mode shows contradictory findings. This study uses a strategic fit perspective to examine the impact of distinct cultural factors as predictors of equity entry scale of Chinese firms. Findings from a sample of 667 Chinese firms demonstrate that the effects of cultural fit on equity entry scale vary across cultural dimensions. Whereas a collectivism cultural fit motivates Chinese investors to secure a high-equity entry scale in foreign firms, a lower power distance cultural fit (“misfit”) leads to higher entry involvement.