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India's Approach to Capital Account Liberalization

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  • Prasad, Eswar

    ()
    (Cornell University)

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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3927.

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Length: 54 pages
Date of creation: Jan 2009
Date of revision:
Publication status: published in: Brookings India Policy Forum, August 2009
Handle: RePEc:iza:izadps:dp3927

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Keywords: international financial integration; capital controls; capital flows; India;

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References

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  1. 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.
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  5. Kristin J. Forbes, 2005. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Working Papers 11372, National Bureau of Economic Research, Inc.
  6. Eswar S. Prasad & Raghuram Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," NBER Working Papers 14051, National Bureau of Economic Research, Inc.
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  24. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2006. "Financial Globalization: A Reappraisal," CEPR Discussion Papers 5842, C.E.P.R. Discussion Papers.
  25. Shah, Ajay, 2008. "New issues in Indian macro policy," Working Papers 08/51, National Institute of Public Finance and Policy.
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Citations

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Cited by:
  1. Ajay Shah & Ila Patnaik, 2010. "Why India Choked when Lehman Broke," Working Papers id:2362, eSocialSciences.
  2. Dilip K. Das, 2010. "Financial globalization: a macroeconomic angle," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 2(4), pages 307-325, December.
  3. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 439-464, September.

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