A Pragmatic Approach to Capital Account Liberalization

37 Pages Posted: 23 May 2008  

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

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Abstract

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.

Keywords: capital account liberalization, capital controls, collateral benefits, thresholds

JEL Classification: F2, F3, F4

Suggested Citation

Prasad, Eswar S. and Rajan, Raghuram G., A Pragmatic Approach to Capital Account Liberalization. , Vol. , pp. -, . Available at SSRN: https://ssrn.com/abstract=1136276 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Eswar S. Prasad (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

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HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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