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Insuring Against Private Capital Flows: Is It Worth the Premium? What Are the Alternatives?

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  • Jörg Bibow

Abstract

Following an analysis of the forces behind the so-called "global capital flows paradox" observed in the era of advancing financial globalization, this paper sets out to investigate the opportunity costs of self-insurance through precautionary reserve holdings. We reject the idea of reserves as low-cost protection against the vagaries of global finance. And we also deny that arrangements giving rise to their rapid accumulation may be sustainable in the first place. Alternative policy options open to developing countries are explored, designed to limit both the risks of financial globalization and costs of insurance-type responses. We propose comprehensive capital account management as an alternative to full capital account liberalization. The aims of a permanent regulatory regime of capital controls, both with respect to the aggregate size and the composition of capital flows, are twofold. The first aim is to maintain sufficient macro policy space. The second aim is to assure a good micro fit of external expertise incorporated in FDI with a country's development strategy.

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  • Jörg Bibow, 2008. "Insuring Against Private Capital Flows: Is It Worth the Premium? What Are the Alternatives?," International Journal of Political Economy, Taylor & Francis Journals, vol. 37(4), pages 5-30.
    • Handle: RePEc:mes:ijpoec:v:37:y:2008:i:4:p:5-30
    DOI: 10.2753/IJP0891-1916370401
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    Cited by:

    1. Amaya Altuzarra & Jesús Ferreiro & Felipe Serrano, 2010. "The role of global imbalances as a cause of the current crisis," Journal of Innovation Economics, De Boeck Université, vol. 0(2), pages 25-48.
    2. Bruno Bonizzi, 2017. "International financialisation, developing countries and the contradictions of privatised Keynesianism," Economic and Political Studies, Taylor & Francis Journals, vol. 5(1), pages 21-40, January.
    3. Jorg Bibow, 2011. "Permanent and Selective Capital Account Management Regimes as an Alternative to Self-Insurance Strategies in Emerging-market Economies," Economics Working Paper Archive wp_683, Levy Economics Institute.
    4. Ingo Barens & Peter Flaschel & Florian Hartmann & Andreas Röthig, 2010. "Kaldorian boom-bust cycles in the housing market," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 7(2), pages 361-375.

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