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Some New Perspectives on India's Approach to Capital Account Liberalization

  • Eswar S. Prasad

    (Brookings Institution)

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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Article provided by Global Economy and Development Program, The Brookings Institution in its journal India Policy Forum.

Volume (Year): 5 (2008)
Issue (Month): 1 ()
Pages: 125-178

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Handle: RePEc:bin:indiap:v:5:y:2008:i:2008-1:p:125-178
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  1. Eduardo A. Cavallo & Jeffrey Frankel, 2007. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Research Department Publications 4544, Inter-American Development Bank, Research Department.
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  9. Eswar S. Prasad & Raghuram Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," NBER Working Papers 14051, National Bureau of Economic Research, Inc.
  10. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
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  12. Panagariya, Arvind, 2008. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780195315035, July.
  13. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
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