Advanced Search
MyIDEAS: Login to save this paper or follow this series

Management of International Capital Flows: The Indian Experience

Contents:

Author Info

  • Sen Gupta, Abhijit

Abstract

In this paper we devise quantitative techniques to analyze the management of foreign capital flows in India over the past three decades. The paper argues that India's overall approach towards liberalization of the capital account can be characterized as gradualist and calibrated, whereby certain agents and flows have been accorded priority in the liberalization process, from the viewpoint of ensuring financial stability. A cross country analysis indicates that the calibrated approach has resulted in India being ranked towards the lower end of the spectrum in terms of capital account openness. We analyze the extant regulations governing different types of foreign capital flow, and highlight the evolution of various types of capital flows over the recent period. To evaluate Indian macroeconomic management in the face of capital flows, we quantify the various policy options under the classic problem of "impossible trinity". We find that India, like other emerging markets, has also been confronted with the various alternatives under "impossible trinity" and has chosen to adopt an intermediate regime, juggling the objectives of monetary independence, exchange rate stability, and an open capital account as per the needs of the economy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/23747/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23747.

as in new window
Length:
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:pra:mprapa:23747

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Capital Flows; Impossible Trinity; Macroeconomic Management;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2754, C.E.P.R. Discussion Papers.
  2. Michael Klein & Giovanni Olivei, 1999. "Capital account liberalization, financial depth, and economic growth," Working Papers, Federal Reserve Bank of Boston 99-6, Federal Reserve Bank of Boston.
  3. Sweta Chaman Saxena & Valerie Cerra, 2000. "What Caused the 1991 Currency Crisis in India?," IMF Working Papers, International Monetary Fund 00/157, International Monetary Fund.
  4. Kose, M. Ayhan & Prasad, Eswar S. & Taylor, Ashley D., 2009. "Thresholds in the process of international financial integration," Policy Research Working Paper Series, The World Bank 5149, The World Bank.
  5. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, Elsevier, vol. 81(1), pages 163-192, October.
  6. Levine, Ross & Zervos, Sara, 1996. "Capital control liberalization and stock market development," Policy Research Working Paper Series, The World Bank 1622, The World Bank.
  7. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 1-16, May.
  8. Torsten Sløk & Hali J. Edison & Luca Antonio Ricci & Ross Levine, 2002. "International Financial Integration and Economic Growth," IMF Working Papers, International Monetary Fund 02/145, International Monetary Fund.
  9. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," NBER Working Papers, National Bureau of Economic Research, Inc 13619, National Bureau of Economic Research, Inc.
  10. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 329-368.
  11. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5644, C.E.P.R. Discussion Papers.
  12. Arvind Subramanian & Jonathan David Ostry & Simon Johnson, 2007. "The Prospects for Sustained Growth in Africa," IMF Working Papers, International Monetary Fund 07/52, International Monetary Fund.
  13. Simon Johnson & Jonathan D. Ostry & Arvind Subramanian, 2007. "The Prospects for Sustained Growth in Africa: Benchmarking the Constraints," NBER Working Papers, National Bureau of Economic Research, Inc 13120, National Bureau of Economic Research, Inc.
  14. Mody, Ashoka & Murshid, Antu Panini, 2005. "Growing up with capital flows," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 249-266, January.
  15. Michael W. Klein, 2005. "Capital Account Liberalization, Institutional Quality and Economic Growth: Theory and Evidence," NBER Working Papers, National Bureau of Economic Research, Inc 11112, National Bureau of Economic Research, Inc.
  16. Abhijit Sen Gupta, 2008. "Does capital account openness lower inflation?," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(4), pages 471-487.
  17. Eichengreen, Barry, 2000. "Taming Capital Flows," World Development, Elsevier, Elsevier, vol. 28(6), pages 1105-1116, June.
  18. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(4), pages 65-84, Fall.
  19. Salvador Valdés-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer, Springer, vol. 25(2), pages 133-164, January.
  20. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
  21. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(3), pages 149-72, Summer.
  22. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers, International Monetary Fund 05/126, International Monetary Fund.
  23. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, Elsevier, vol. 77(2), pages 221-225, October.
  24. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
  25. Jeannine N. Bailliu, 2000. "Private Capital Flows, Financial Development, and Economic Growth in Developing Countries," Working Papers, Bank of Canada 00-16, Bank of Canada.
  26. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 300-351, February.
  27. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, Elsevier, vol. 63(1), pages 59-83, October.
  28. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2010. "The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(4), pages 615-641, June.
  29. Cardenas, Mauricio & Barrera, Felipe, 1997. "On the effectiveness of capital controls: The experience of Colombia during the 1990s," Journal of Development Economics, Elsevier, Elsevier, vol. 54(1), pages 27-57, October.
  30. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  31. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2910, C.E.P.R. Discussion Papers.
  32. Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
  33. Vijay Joshi, 2003. "India and the Impossible Trinity," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 26(4), pages 555-583, 04.
  34. Woochan Kim, 2003. "Does Capital Account Liberalization Discipline Budget Deficit?," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 11(5), pages 830-844, November.
  35. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers, National Bureau of Economic Research, Inc 8076, National Bureau of Economic Research, Inc.
  36. Bruno Coelho & Kevin Gallagher, 2010. "Capital Controls and 21st Century Financial Crises: Evidence from Colombia and Thailand," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp213, Political Economy Research Institute, University of Massachusetts at Amherst.
  37. Rakesh Mohan, 2008. "Capital flows to India," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 235-263 Bank for International Settlements.
  38. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 411-422.
  39. Márcio gomes Pinto Garcia & Marcus Vinicius Ferrero Valpassos, 1998. "Capital flows, capital controls and currency crisis: the case of Brazil in the nineties," Textos para discussão, Department of Economics PUC-Rio (Brazil) 389, Department of Economics PUC-Rio (Brazil).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Guonan Ma & Robert N McCauley, 2013. "Is China or India more financially open?," BIS Working Papers, Bank for International Settlements 410, Bank for International Settlements.
  2. Karl Friedrich Habermeier & Annamaria Kokenyne & Chikako Baba, 2011. "The Effectiveness of Capital Controls and Prudential Policies in Managing Large Inflows," IMF Staff Discussion Notes, International Monetary Fund 11/14, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23747. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.