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Rethinking the Economics of Capital Mobilityand Capital Controls

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  • Thomas I. Palley

    () (Economics for Democratic & Open Societies, Washington DC)

Abstract

This paper reexamines the issue of international financial capital mobility, which is today's economic orthodoxy. Discussion is often framed in terms of the impossible trinity. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It also distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy, pointing to the ideological dimension behind today's policy orthodoxy.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 01-2009.

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Length: 42 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:imk:wpaper:01-2009

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Keywords: capital mobility; capital controls; impossible trinity.;

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References

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  1. Bernardo S. de M. Carvalho & Márcio G. P. Garcia, 2008. "Ineffective Controls on Capital Inflows under Sophisticated Financial Markets: Brazil in the Nineties," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 29-96 National Bureau of Economic Research, Inc.
  2. Thomas I. Palley, 2003. "The Economics of Exchange Rates and the Dollarization Debate : The Case Against Extremes," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 33(1), pages 61-82, April.
  3. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," IMF Working Papers 06/189, International Monetary Fund.
  4. Sebastian Edwards & Roberto Rigobon, 2005. "Capital Controls, Exchange Rate Volatility and External Vulnerability," NBER Working Papers 11434, National Bureau of Economic Research, Inc.
  5. Colin I. BRADFORD, Jr., 2005. "Prioritizing Economic Growth: Enhancing Macroeconomic Policy Choice," G-24 Discussion Papers 37, United Nations Conference on Trade and Development.
  6. De Grauwe, Paul, 2000. "Controls on capital flows," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101337, Katholieke Universiteit Leuven.
  7. Thomas Palley, 2008. "The Economics of Outsourcing: How Should Policy Respond?," Review of Social Economy, Taylor and Francis Journals, vol. 66(3), pages 279-295.
  8. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
  9. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
  10. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
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Cited by:
  1. Sunanda Sen, 2012. "Managing Global Financial Flows at the Cost of National Autonomy: China and India," Economics Working Paper Archive wp_714, Levy Economics Institute, The.

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