By Marek Belka
Conventional wisdom has been that capital flows are a blessing to emerging economies, bringing needed funds to countries where investments are most productive. But if history is any guide, capital flows have proven to be highly volatile—surging in good times and collapsing in gloomy ones.
The global financial crisis has renewed the debate over the desirability of capital flows to emerging economies. Adding fuel to this debate is the fact that two of the world’s largest emerging economies—China and India—have experienced strong growth and relatively limited fallout from the crisis, all the while maintaining hefty restrictions on the flow of foreign capital.
What can be done to ensure that emerging economies still benefit from productive foreign capital, while reducing the risks associated with highly volatile flows? Can we throw out the bathwater, but keep the baby?
Filed under: Advanced Economies, Economic research, Emerging Markets, Europe, Financial regulation | Tagged: capital controls, China, European Union, exchange rates, fiscal policy, foreign currency lending, G-20, India, Marek Belka, Poland, reserves | 5 Comments »