Heterogeneous Firm Responses to Targeted Capital Controls: Micro-Level Evidence from Vietnam's Foreign Exchange Restriction Episodes, 2012–2022

Abstract

This paper examines the differential impact of targeted capital controls on firm-level investment behavior and financing constraints in Vietnam during successive foreign exchange restriction episodes from 2012 to 2022. Exploiting quasi-experimental variation in the State Bank of Vietnam's regulatory tightening cycles, we employ a stacked difference-in-differences estimator augmented with propensity score reweighting to identify heterogeneous treatment effects across firm size, export orientation, and foreign ownership strata. Drawing on a matched panel of 4,817 manufacturing firms from the Vietnam Enterprise Survey, we find that domestically owned small and medium enterprises experienced statistically significant reductions in fixed capital formation (–11.3%) and working capital liquidity ratios (–8.7%) relative to foreign-affiliated counterparts. These results are robust to alternative control windows and survive placebo falsification tests. Our findings carry substantive implications for the optimal design of macroprudential capital flow management tools in emerging open economies.