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Capital Account Liberalization, Free Long-Term Capital Flows, Financial Crises and Economic Development

  • Ajit Singh

    ()

    (Queens' College, University of Cambridge)

The first part of this paper examines the theoretical and empirical case for full capital account liberalization in developing countries (DCs) and finds it unconvincing. Indeed, analysis and evidence presented here point to a strong case against it. The second part considers the liberalization of only the long-term capital account, particularly FDI--a form of inflow favored by most economists. This paper argues that a multilateral agreement on investment, which denies countries the discretion to regulate FDI, will not be in the interests of DCs.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume29/V29N2P191_216.pdf
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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 29 (2003)
Issue (Month): 2 (Spring)
Pages: 191-216

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Handle: RePEc:eej:eeconj:v:29:y:2003:i:2:p:191-216
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  1. Ronald I. McKinnon & Huw Pill, 1999. "Exchange Rate Regimes for Emerging Markets: Moral Hazard and International Overborrowing," Working Papers 99018, Stanford University, Department of Economics.
  2. Charles WYPLOSZ, 2001. "How Risky Is Financial Liberalization In The Developing Countries?," G-24 Discussion Papers 14, United Nations Conference on Trade and Development.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
  5. Enrique G. Mendoza, 2001. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Working Papers 8338, National Bureau of Economic Research, Inc.
  6. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
  7. Panicos O Demetriades & Kul B Luintel, 2000. "Financial Restraints in the South Korean Miracle," Discussion Papers in Economics 00/5, Department of Economics, University of Leicester.
  8. Philippe Martin & Helene Rey, 2002. "Financial Globalization and Emerging Markets: With or Without Crash?," NBER Working Papers 9288, National Bureau of Economic Research, Inc.
  9. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  10. Chari, Anusha & Henry, Peter B., 2002. "Capital Account Liberalization: Allocative Efficiency or Animal Spirits?," Research Papers 1737, Stanford University, Graduate School of Business.
  11. Glyn, A. & Hughes, A. & Lipietz, A. & Singh, A., 1988. "The Rise And Fall Of The Golden Age," Cambridge Working Papers in Economics 884, Faculty of Economics, University of Cambridge.
  12. Hali J. Edison & Michael W. Klein & Luca Ricci & Torsten Sloek, 2002. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," NBER Working Papers 9100, National Bureau of Economic Research, Inc.
  13. Classens, S. & Dooley, M.P. & Warner, A., 1995. "Portfolio Capital Flows: Hot or Cold," Papers 501, Harvard - Institute for International Development.
  14. Williamson, John, 2002. "Proposals for Curbing the Boom-Bust Cycle in the Supply of Capital to Emerging Markets," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  15. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
  16. Martin Feldstein, 2002. "Economic and Financial Crises in Emerging Market Economies: Overview of Prevention and Management," NBER Working Papers 8837, National Bureau of Economic Research, Inc.
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