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Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements

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  • Kevin P. Gallagher
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    Abstract

    Do nations have the policy space to deploy capital controls in order to prevent and mitigate financial crises? This paper examines the extent to which measures to mitigate this crisis and prevent future crises are permissible under a variety of bilateral, regional and multilateral trade and investment agreements. It is found that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to manoeuvre when it comes to capital controls. This is the case despite the increasing economic evidence showing that certain capital controls can be useful in preventing or mitigating financial crises. It also stands in contrast with investment rules under the IMF, OECD and the treaties of most capital exporting nations which allow for at least the temporary use of capital controls as a safeguard measure. Drawing on the comparative analysis conducted in the paper, the author offers a range of policies that could be deployed to make the United States investment rules more consistent with the rules of its peers and the economic realities of the 21st century.

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    File URL: http://www.unctad.org/en/Docs/gdsmdpg2420101_en.pdf
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    Bibliographic Info

    Paper provided by United Nations Conference on Trade and Development in its series G-24 Discussion Papers with number 58.

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    Date of creation: 2010
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    Handle: RePEc:unc:g24pap:58

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    1. Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
    2. Ayhan Kose, M. & Prasad, Eswar S. & Taylor, Ashley D., 2011. "Thresholds in the process of international financial integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 147-179, February.
    3. Nicolas Magud & Carmen M. Reinhart, 2005. "Capital Controls: An Evaluation," University of Oregon Economics Department Working Papers 2005-19, University of Oregon Economics Department.
      • Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
    4. Jörg Mayer, 2008. "Policy Space: What, For What, And Where?," UNCTAD Discussion Papers 191, United Nations Conference on Trade and Development.
    5. Alexei Kireyev, 2002. "Liberalization of Trade in Financial Services and Financial Sector Stability (Analytical Approach)," IMF Working Papers 02/138, International Monetary Fund.
    6. Laura Alfaro, 2004. "Capital Controls: a Political Economy Approach," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 571-590, 09.
    7. Salacuse, Jeswald W., 2010. "The Law of Investment Treaties," OUP Catalogue, Oxford University Press, number 9780199206056, September.
    8. Nico Valckx, 2002. "WTO Financial Services Commitments," IMF Working Papers 02/214, International Monetary Fund.
    9. Anne van Aaken & Jürgen Kurtz, 2009. "Prudence or Discrimination? Emergency Measures, the Global Financial Crisis and International Economic Law," Journal of International Economic Law, Oxford University Press, vol. 12(4), pages 859-894, December.
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    Cited by:
    1. Ilene Grabel, 2013. "The Rebranding of Capital Controls in an Era of Productive Incoherence," Working Papers wp318, Political Economy Research Institute, University of Massachusetts at Amherst.

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