What's Wrong with International Financial Markets?

27 Pages Posted: 21 Apr 2011

See all articles by Ricardo Hausmann

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Eduardo Fernandez-Arias

Inter-American Development Bank (IDB)

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Date Written: August 2000

Abstract

Recent financial crises and contagion call into question the wisdom of capital account liberalization. There is consensus that something is terribly wrong in the way international financial markets work for developing countries and that fixing is urgent. But what is wrong? Most views in developed countries identify the problems with too much capital flows, attracted by moral hazard. However, our analysis shows that the role of this distortion is being grossly exaggerated and that, in contrast, the main distortions in international financial markets are associated with capital flows being too little, restricted by sovereign risk, and too volatile because of market failures.

Suggested Citation

Hausmann, Ricardo and Fernandez-Arias, Eduardo, What's Wrong with International Financial Markets? (August 2000). IDB Working Paper No. 360, Available at SSRN: https://ssrn.com/abstract=1817229 or http://dx.doi.org/10.2139/ssrn.1817229

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Eduardo Fernandez-Arias

Inter-American Development Bank (IDB) ( email )

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