EXTERNAL PROTECTION, CAPITAL CONTROLS, AND DIFFERENTIATED INSERTION OF ASIAN AND LATIN AMERICAN ECONOMIES INTO THE FINANCIAL GLOBALIZATION (1995-2016)

ABSTRACT This paper analyses the differentiated insertion of Asian and Latin American economies into the financial globalization from 1995 to 2016, highlighting the relationship between the current account balance and the use of capital controls. It argues that, in the context of financial globalization, higher levels of external protection and the use of capital controls are fundamental to maintain the real exchange rate at a competitive level. Evidence from the six largest Latin American countries and the Asian Tigers and China (excluding Taiwan) show that countries with higher levels of external protection, that is, with high and persistent current account surpluses based on the production and export of high value-added products, were less dependent on more volatile international capital inflows and more able to use higher and more stable capital controls over time as well as to maintain the real exchange rate at a competitive level.