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Capital Market Liberalization and Exchange Rate Regimes: Risk without Reward

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  • Joseph E. Stiglitz

    (Columbia University's Economics Department, School of International and Public Affairs, and Business School)

Abstract

This paper examines the consequences of capital market liberalization, with special reference to its effects under different exchange rate regimes. Capital market liberalization has not lead to faster growth in developing countries, but has led to greater risks. It describes how International Monetary Fund policies have exacerbated the risks, as a result of the macro-economic response to crises, with bail-out packages that have intensified moral hazard problems. The paper provides a critique of the arguments for capital market liberalization. It argues that capital flows give rise to large externalities, which affect others than the borrower and lender, and whenever there are large externalities, there is potential scope for government interventions, some of which are welfare increasing.

Suggested Citation

  • Joseph E. Stiglitz, 2002. "Capital Market Liberalization and Exchange Rate Regimes: Risk without Reward," The ANNALS of the American Academy of Political and Social Science, , vol. 579(1), pages 219-248, January.
    • Handle: RePEc:sae:anname:v:579:y:2002:i:1:p:219-248
    DOI: 10.1177/000271620257900114
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    References listed on IDEAS

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    Cited by:

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    2. Rizwan Khalid & Choudhry Tanveer Shehzad & Bushra Naqvi, 2023. "Impact of capital account liberalization on stock market crashes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3700-3726, October.

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