Critique of Capital Controls in the Axis of Efficiency-Growth and Factor Productivity

Year 2015, Volume: 4 Issue: 4, 129 - 137, 01.12.2015

Ekrem Gül Ünsal Ozan Kahraman

Abstract

Behind the most important tip how to analyze an economic phenomenon, event or
policy and how to deal with the matter and which tools to use, while a total
combination of instruments belonging to the economic theory are available, lies the
fact that the discussed phenomenon has a long or short term character. One of the
most important lessons we take from the economic literature is that obstacles on
price mechanism such as the long-term price rigidities and contracts are removed and
so the curve of aggregate supply is detected to be quite upright and therefore the total
demand (shifting left or right that is to say increase or decrease) does not have much
effect on the output. This intuition provides us an insight in laying emphasis on
supply-side and needing to find other ways to move the upright supply curve right.
This classical price mechanism approach, which regards economy as a matrix of
prices, in which a large number of goods and services are in the same kind, has two
key categories: growth and efficiency. The main issue in this picture, where each
supply creates its own demand, is to increase the total supply (or more precisely to
shift the curve of the long-term potential total supply to the right) or to reach the
most effective cost and resource allocation which maximize the social welfare, while
supply is used as a data. At this point, a total tool of microeconomics borrowed from
classical economics stand in front of us. One of the most important shortages in the
literature of capital controls is the fact that such a primary distinction is often not
made and the microeconomics aspect of the matter is often not be included.