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Some New Perspectives on India's Approach to Capital Account Liberalization

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  • Eswar S. Prasad

    (Brookings Institution)

Abstract

In this paper, I analyze India's approach to capital account liberalization through the lens of the new literature on financial globalization. India's authorities have taken a cautious and calibrated path to capital account opening, which has served the economy well in terms of reducing its vulnerability to crises. By now, the capital account has become quite open and reversing this is not a viable option. Moreover, the remaining capital controls are rapidly becoming ineffective, making the debate about capital controls rather moot. Managing de facto financial integration into international capital markets and aligning domestic macroeconomic policies in a manner that maximizes the indirect benefits and reduces the risks is the key challenge now facing India's policymakers on this front.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Global Economy and Development Program, The Brookings Institution in its journal India Policy Forum.

Volume (Year): 5 (2008)
Issue (Month): 1 ()
Pages: 125-178

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Handle: RePEc:bin:indiap:v:5:y:2008:i:2008-1:p:125-178

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Keywords: India; macroeconomics; capital account; liberalization;

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References

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  1. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
  2. Eduardo A. Cavallo & Jeffrey Frankel, 2007. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Research Department Publications 4544, Inter-American Development Bank, Research Department.
  3. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
  4. Pierre-Olivier & Olivier Jeanne, 2009. "Capital Flows to Developing Countries: The Allocation Puzzle," Working Paper Series WP09-12, Peterson Institute for International Economics.
  5. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
  6. Joshua Aizenman & Brian Pinto & Artur Radziwill, 2004. "Sources for financing domestic capital - is foreign saving a viable option for developing countries?," CASE Network Studies and Analyses 0288, CASE-Center for Social and Economic Research.
  7. Eswar S. Prasad & Raghuram Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," NBER Working Papers 14051, National Bureau of Economic Research, Inc.
  8. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563, October.
  9. Linda Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports 183, Federal Reserve Bank of New York.
  10. Shah, Ajay & Patnaik, Ila, 2008. "Managing capital flows: The case of India," Working Papers 08/52, National Institute of Public Finance and Policy.
  11. Ajay Shah, 2008. "New issues in Indian macro policy," Working Papers id:1478, eSocialSciences.
  12. Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
  13. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
  14. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers 06/189, International Monetary Fund.
  15. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  16. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
  17. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
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Cited by:
  1. Ila Patnaik & Ajay Shah, 2010. "Why India choked when Lehman broke," Finance Working Papers 22974, East Asian Bureau of Economic Research.
  2. Singla, Chitra & George, Rejie, 2013. "Internationalization and performance: A contextual analysis of Indian firms," Journal of Business Research, Elsevier, vol. 66(12), pages 2500-2506.
  3. Ejaz Ghani, 2011. "Reshaping Tomorrow : Is South Asia Ready for the Big Leap?," World Bank Publications, The World Bank, number 16360, February.
  4. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, Elsevier.

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