A Pragmatic Approach to Capital Account Liberalization
Eswar S. Prasad
Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; Institute for the Study of Labor (IZA)
Raghuram G. Rajan
University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)
IZA Working Paper No. 3475
Cross-country regressions suggest little connection from foreign capital inflows to more rapid economic growth for developing countries and emerging markets. This suggests that the lack of domestic savings is not the primary constraint on growth in these economies, as implicitly assumed in the benchmark neoclassical framework. We explore emerging new theories on both the costs and benefits of capital account liberalization, and suggest how one might adopt a pragmatic approach to the process.
Number of Pages in PDF File: 37
Keywords: capital account liberalization, capital controls, collateral benefits, thresholds
JEL Classification: F2, F3, F4
Date posted: May 23, 2008
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