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Contagion, Liberalization, and the Optimal Structure of Globalization

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  • Stiglitz Joseph E.

    (Columbia University)

Abstract

Advocates of capital market liberalization argue that it leads to greater stability: countries faced with a negative shock borrow from the rest of the world, allowing cross-country smoothing. There is considerable evidence against this conclusion. This paper explores one reason: integration can exacerbate contagion; a failure in one country can more easily spread to others. It derives conditions under which such adverse effects overwhelm the putative positive effects. It explains how capital controls can be welfare enhancing, reducing the risk of adverse effects from contagion. This paper presents an analytic framework within which we can begin to address broader questions of optimal economic architectures.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Globalization and Development.

Volume (Year): 1 (2010)
Issue (Month): 2 (December)
Pages: 1-47

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Handle: RePEc:bpj:globdv:v:1:y:2010:i:2:n:2

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References

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  1. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
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Cited by:
  1. Lukas Scheffknecht, 2013. "Contextualizing Systemic Risk," ROME Working Papers 201317, ROME Network.
  2. Arthur Blouin & Sayantan Ghosal & Sharun Mukand, 2012. "Globalization and the (Mis)Governance of Nations," CESifo Working Paper Series 3715, CESifo Group Munich.

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