Capital Controls and Globalisation in the 21st Century : Myth and Reality

Globalisation has become a catchword used at the turn of this millennium. It has led to increasing economic interconnectedness and profound business, social and political revolution worldwide. However, the backlash suffered from globalisation such as the transmission of international financial crisis, capital flight, economic contagion and financial distresses across the countries have led many protectionists to canvas for capital controls. A major financial or economic crisis can have systematic effects and can catastrophically undermine the stability of the institutions that make global interchange possible. Such a picture in which financial volatility destroys the system that was built on the basis of a free flow capital is very worrisome. Nevertheless, it has been observed that capital controls in one country may also have positive or negative spill over effects on other countries and might not be beneficial to such country on the long run. Because of these and so many other factors, there are indeed battles over globalism in this present age.This paper investigates the justifications for both globalisation and capital controls in the twenty first century. Particularly, with the backlash forces feeling that their countries were plugged into the globalisation system and are being forced into a golden straightjacket that is one size fit all, investigating cases for controlling of capital flows may be needful. Empirical studies show that there are previous works focusing on the effects of capital controls on the very country that set the policy. However, there are very few studies investigating the international spill over effects of such control; most especially, the regional economic contagion and impacts on the neighbouring countries. This study however examines the regional impacts of capital control and its shock transmission on regional economies