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Capital account liberalization, free long-term capital flows, financial crises and economic development

  • Ajit Singh

The first part of this paper examines the theoretical and empirical case for full capital account liberalisation in developing countries(DCs) and finds it unconvincing. Indeed, analysis and evidence presented here point to a compelling case against it. The second part considers the liberalisation of only the long-term capital account, particularly FDI - a form of in-flow favoured by most economists. This paper, however, argues that even FDI, if unregulated, may do more harm than good. It is suggested that DCs should, therefore, resist the new advanced country proposals for a multilateral agreement on FDI.

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Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp245.

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Date of creation: Dec 2002
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Handle: RePEc:cbr:cbrwps:wp245
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  1. Hali J. Edison & Michael W. Klein & Luca Antonio Ricci & Torsten Sløk, 2004. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 2.
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  3. Chari, Anusha & Henry, Peter B., 2002. "Capital Account Liberalization: Allocative Efficiency or Animal Spirits?," Research Papers 1737, Stanford University, Graduate School of Business.
  4. Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
  5. 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.
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  7. Wyplosz, Charles, 2001. "How Risky is Financial Liberalization in the Developing Countries?," CEPR Discussion Papers 2724, C.E.P.R. Discussion Papers.
  8. Enrique G. Mendoza, 2002. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 335-392 National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
  12. 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.
  13. Claessens, Stijn & Dooley, Michael P & Warner, Andrew, 1995. "Portfolio Capital Flows: Hot or Cold?," World Bank Economic Review, World Bank Group, vol. 9(1), pages 153-74, January.
  14. 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.
  15. 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.
  16. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
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