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Capital Account Liberalization, Free Long-Term Capital Flows, Financial Crises and Economic Development

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  • Ajit Singh

    ()
    (Queens' College, University of Cambridge)

Abstract

The first part of this paper examines the theoretical and empirical case for full capital account liberalization in developing countries (DCs) and finds it unconvincing. Indeed, analysis and evidence presented here point to a strong case against it. The second part considers the liberalization of only the long-term capital account, particularly FDI--a form of inflow favored by most economists. This paper argues that a multilateral agreement on investment, which denies countries the discretion to regulate FDI, will not be in the interests of DCs.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume29/V29N2P191_216.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 29 (2003)
Issue (Month): 2 (Spring)
Pages: 191-216

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Handle: RePEc:eej:eeconj:v:29:y:2003:i:2:p:191-216

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Keywords: Capital Flow; Developing Countries; Development; Liberalization;

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References

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  1. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
  2. Charles WYPLOSZ, 2001. "How Risky Is Financial Liberalization In The Developing Countries?," G-24 Discussion Papers 14, United Nations Conference on Trade and Development.
  3. Torsten Sløk & Michael Klein & Luca Antonio Ricci & Hali J. Edison, 2002. "Capital Account Liberalization and Economic Performance," IMF Working Papers 02/120, International Monetary Fund.
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  6. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
  7. Classens, S. & Dooley, M.P. & Warner, A., 1995. "Portfolio Capital Flows: Hot or Cold," Papers 501, Harvard - Institute for International Development.
  8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  9. Ronald I. McKinnon & Huw Pill, 1999. "Exchange Rate Regimes for Emerging Markets: Moral Hazard and International Overborrowing," Working Papers 99018, Stanford University, Department of Economics.
  10. Hali J. Edison & Michael W. Klein & Luca Antonio Ricci & Torsten Sløk, 2004. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 2.
  11. Chari, Anusha & Henry, Peter B., 2002. "Capital Account Liberalization: Allocative Efficiency or Animal Spirits?," Research Papers 1737, Stanford University, Graduate School of Business.
  12. Philippe Martin & Helene Rey, 2002. "Financial Globalization and Emerging Markets: With or Without Crash?," NBER Working Papers 9288, National Bureau of Economic Research, Inc.
  13. Martin Feldstein, 2002. "Economic and Financial Crises in Emerging Market Economies: Overview of Prevention and Management," NBER Working Papers 8837, National Bureau of Economic Research, Inc.
  14. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  15. Williamson, John, 2002. "Proposals for Curbing the Boom-Bust Cycle in the Supply of Capital to Emerging Markets," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  16. Glyn, A. & Hughes, A. & Lipietz, A. & Singh, A., 1988. "The Rise And Fall Of The Golden Age," Cambridge Working Papers in Economics 884, Faculty of Economics, University of Cambridge.
  17. Enrique G. Mendoza, 2001. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Working Papers 8338, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ajit SINGH, 2002. "Competition And Competition Policy In Emerging Markets: International And Developmental Dimensions," G-24 Discussion Papers 18, United Nations Conference on Trade and Development.
  2. Gregory James & Michail Karoglou, 2010. "Financial liberalization and stock market volatility: the case of Indonesia," Applied Financial Economics, Taylor & Francis Journals, vol. 20(6), pages 477-486.
  3. Liberati, Paolo, 2007. "Trade openness, capital openness and government size," MPRA Paper 44371, University Library of Munich, Germany.
  4. Ben Gamra, Saoussen, 2009. "Does financial liberalization matter for emerging East Asian economies growth? Some new evidence," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 392-403, June.
  5. Ajit Singh, 2005. "FDI, Globalisation and Economic Development - Towards Reforming National and International Rules of the Game," ESRC Centre for Business Research - Working Papers wp304, ESRC Centre for Business Research.
  6. Philip Arestis & Ajit Singh, 2010. "Financial globalisation and crisis, institutional transformation and equity," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 225-238, March.
  7. Ajit Singh & Ann Zammit, 2006. "Corporate Governance, Crony Capitalism and Economic Crises: should the US business model replace the Asian way of "doing business"?," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(4), pages 220-233, 07.
  8. Michail Karoglou & Panicos Demetriades & Siong Law, 2011. "One date, one break?," Empirical Economics, Springer, vol. 41(1), pages 7-24, August.
  9. K.S. Jomo & Ilene Grabel & Gerald Epstein, 2003. "Capital Management Techniques In Developing Countries: An Assessment of Experiences From the 1990s and Lessons for the Future," Working Papers wp56, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Michelle Baddeley, 2006. "Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 391-410.
  11. Anita Giselle Doraisami, 2007. "Financial crisis in Malaysia: did FDI flows contribute to vulnerability?," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(7), pages 949-962.
  12. Moritz Cruz & Bernard Walters, 2008. "Is the accumulation of international reserves good for development?," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 665-681, September.
  13. Rolph van der Hoeven, 2010. "Labour Markets Trends, Financial Globalization and the current crisis in Developing Countries," Working Papers 99, United Nations, Department of Economics and Social Affairs.
  14. Panos Lambridis & Theodore Koukoulis, 2005. "The awakening of the red dragon. China fills the power vacuum in the Far East," Asia Europe Journal, Springer, vol. 3(4), pages 479-499, December.
  15. Valpy FitzGerald (QEH), . "Finance and Growth in Developing Countries: Sound Principles and Unreliable Evidence," QEH Working Papers qehwps153, Queen Elizabeth House, University of Oxford.

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