Understanding capital controls measurement: Need, classification, and suitability

Abstract

This study critically reviews the literature on the measures of capital controls, focusing on the conceptual and empirical challenges associated with both de jure and de facto indicators. We document the historical evolution of these measures over the period 1980–2022, classify them into subcategories, and assess their relative strengths, weaknesses, and suitability for policy analysis. We find that de jure measures, particularly capital control actions (CCAs), are generally more appropriate than de facto measures for evaluating policy effects, as they better capture the variation in legal restrictions. Among the de jure indicators, the intensity of policy capture varies, with Pasricha et al. (2015) outperforming Fernández et al. (2016) and Chinn and Ito (2008). We also identify two critical gaps in existing datasets: (i) the absence of direction-specific (inward/outward) and action-specific (tightening/easing) coding for financial sector capital controls; and (ii) the lack of a severity-weighted approach to CCAs that distinguishes marginal procedural changes from sweeping policy shifts. Addressing these gaps offers clear avenues for the construction of more granular and analytically powerful capital controls indicators.