Financialisation and Economic Policy: The Issue of Capital Control in the Developing Countries

If you have found this article useful and you think it is important that researchers across the world have access, please consider donating, to ensure that this valuable collection remains Open Access.

The World Review of Political Economy is published by Pluto Journals, an Open Access publisher. This means that everyone has free and unlimited access to the full-text of all articles from our international collection of social science journals. Furthermore Pluto Journals authors don’t pay article processing charges (APCs).

scite_

World Review of Political Economy

Volume 8, Issue 4

Record: found
Abstract: found
Article: found

Is Open Access

Financialisation and Economic Policy: The Issue of Capital Control in the Developing Countries

research-article

Author(s): Kalim Siddiqui

Publication date (Print): Winter 2017

Journal: World Review of Political Economy

Publisher: Pluto Journals

Keywords: developing countries, capital control, financialisation and instability

Bookmark

Abstract

In analysing the availability and performance of the foreign capital in developing countries, too much attention has been given to the availability of capital and current account while far too little has been given to long-term investment, job creation and economic sovereignty. The current study centres on a critical review of available literature and a contribution to the substantive topics indicated in the title. The objective is to examine relevant empirical and theoretical studies. The study argues that following the adoption of capital liberalisation and neoliberalism, the economies of most developing countries have become more vulnerable. If China is excluded, we find that most developing economies have been unable to expand employment opportunities or reduce levels of poverty due to fear of capital flight. In recent years, capital liberalisation policy has encouraged capital flight from their economies. After 2008, the International Monetary Fund (IMF) publicly express support for capital controls as a result of the global financial crisis and as the vulnerabilities associated with capital flows.

Content

Author and article information

Journal

Journal ID (doi): 10.13169

Journal ID (publisher-id): worlrevipoliecon

Title: World Review of Political Economy

Publisher: Pluto Journals

ISSN (Print): 2042891X

ISSN (Electronic): 20428928

Publication date (Print): Winter 2017

Volume: 8

Issue: 4

Pages: 564-589

Article

Publisher ID: worlrevipoliecon.8.4.0564

DOI: 10.13169/worlrevipoliecon.8.4.0564

SO-VID: 94d66591-a7c5-47c0-8541-90a8fa684d5b

License:

All content is freely available without charge to users or their institutions. Users are allowed to read, download, copy, distribute, print, search, or link to the full texts of the articles in this journal without asking prior permission of the publisher or the author. Articles published in the journal are distributed under a http://creativecommons.org/licenses/by/4.0/.

History

References

Aizenman, J., and G. K. Pasricha. 2013. “Why Do Emerging Markets Liberalise Capital Outflows Control: Fiscal vs Net Capital Flows Concerns.” NBER Publications. Accessed March 16, 2017. www.nber.org/authors/joshua_aizenman.
Aleem, A. 2010. “Transmission Mechanism of Monetary Policy in India.” Journal of Asian Economics 21: 186–97.
Arestis, P., and M. Glickman. 2002. “Financial Crisis in South East Asia: Dispelling Illusion the Minskyan Way” Cambridge Journal of Economics 26 (2): 237–60.
Balin, B. J. 2008. “India's New Capital Restrictions: What They Are, Why They Were Created and Have They Been Effective?” School of Advanced International Studies, John Hopkins University, Washington, DC.
Bond, P., and A. Garcia, eds. 2015. BRICS: An Anti-Capitalist Critique . London: Pluto Press.
Bonizzi, B. 2014. “Financialization in the Developing and Emerging Countries.” International Journal of Political Economy 42 (4): 83–107.
Central Bank of Brazil (BCB). 2014. “Economic Indicators.” Accessed March 16, 2017. http://www.bcb.gov.br/.
Chang, Ha-Joon, and I. Grabel. 2014. Reclaiming Development: An Alternative Economic Policy Manual . London: Zed Books.
Crotty, J., and G. Epstein. 1999. “A Defence of Capital Control in the Light of Asian Financial Crisis.” Journal of Economic 33 (2): 427–33.
Dymski, G. 2010. “Why the Subprime Crisis Is Different: A Minskyian Approach.” Cambridge Journal of Economics 34 (2): 239–55.
Edison, H. J., and C. M. Reinhart. 2000. “Capital Controls during Financial Crises: The Case of Malaysia and Thailand.” Accessed July 25, 2016. https://www.federalreserve.gov/pubs/ifdp/2000/662/ifdp662.pdf.
Epstein, G., ed. 2005a. Capitals Control in Developing Countries . Cheltenham, UK: Edward Elgar.
Epstein, G. 2005b. “Introduction.” in Financialization and the World Economy , edited by G. Epstein, 3–16. Cheltenham, UK: Edward Elgar.
Feldstein, M., and C. Horioka. 1980. “Domestic Saving and International Capital Flows.” Economic Journal 90: 314–29.
Fine, B. 2014. “Financialization from a Marxist Perspective.” International Journal of Political Economy 42 (4): 47–66.
Gallagher, K. 2014. “Countervailing Monetary Policy: Re-regulating Capital Flows in Brazil and South Korea.” Review in International Political Economy 22 (1): 77–102.
Gallagher, K., and Y. Tian. 2017. “Regulating Capital Flows in Emerging Markets: The IMF and the Global Financial Crisis.” Review of Development Finance , June: 1–12. http://dx.doi.org/10.1016/j.rdf.2017.05.002.
Ghosh, J., and C. P. Chandrasekhar. 2009. “The Costs of ’Coupling’: The global crisis and the Indian economy.” Cambridge Journal of Economics 33 (4): 725–39.
Grabel, I. 2006. “International Private Capital Flows and Developing Countries.” in Rethinking Development Economics , edited by Ha-Joon Chang, 324–45. London: Anthem.
IMF. 2012. Liberalising Capital Flows and Managing Outflows . Washington, DC: IMF.
IMF. 2016. Capital Flows to Emerging Markets . Washington, DC: IMF.
Kaltenbrunner, A., and J. P. Painceira. 2015. “Developing Countries' Changing Nature of Financial Integration and New Forms of External Vulnerability: The Brazilian Experience.” Cambridge Journal of Economics 39 (5): 1281–1306. doi:10.1093/cje/beu038.
Kaplan, E., and D. Rodrik. 2001. “Did the Malaysian Capital Control Works?” Accessed July 25, 2016. http://www.nber.org/papers/w8142.
Klein, M. W. 2012. “Capital Control: Gates and Walls, Brookings Institution.“ Accessed July 25, 2016. www.brookings.edu/~/media/Projects/…/Fall%202012/2012b_Klein.pdf.
Levy-Orlik, N. 2012. “Financial Markets in Developing Countries.” in Handbook of Critical Issues in Finance , edited by J. Toporowsk and J. Mitchell, 113–20. Cheltenham, UK: Edward Elgar.
Levy-Orlik, N. 2014. “Financialization and Economic Growth in Developing Countries: The Case of Mexican Economy.” International Journal of Political Economy 42 (4): 108–27.
Magud, N., and C. M. Reinhart. 2006. “Capital Control: An Evaluation.” NBER working paper series. Accessed March 16, 2017. https://www.nber.org/papers/w11973.
Minsky, H. P. 1986. Stabilizing and Unstable Economy . New Haven, CT: Yale University Press.
Mishkin, F. S. 2004. “Can Inflation Targeting Work in Emerging Market Countries?” NBER Working Paper No. 10646, July. Accessed March 16, 2017. http://www.nber.org/papers/w10646.
Mitchell, J., and J. Toporowski. 2014. “Critical Observation on Financialization and the Financial Process.” International Journal of Political Economy 42 (4): 67–82. doi:10.2753/IJP0891-191640404.
Obstfeld, M. 1998. “The Global Capital Market: Benefactor or Menace?” Journal of Economic Perspectives 12 (4): 9–30.
Ocampo, J. A., and J. E. Stiglitz, eds. 2008. Capital Markets Liberalization and Development . New York: Oxford University Press.
Ostry, J. D., et al. 2010. “Capital Inflows: The Role of Control.” IMF. Accessed March 16, 2017. https://www.imf.org/external/pubs/ft/spn/2010/spn1004.pdf.
Ostry, J. D., P. Loungani, and D. Furceri. 2016. “Neoliberalism: Oversold?” Finance and Development 53 (4): 9–30. June. Accessed March 16, 2017. http://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm.
Reinhart, C. M., and K. S. Rogoff. 2011. “From Financial Crash to Debt Crisis.” American Economic Review 101: 1676–706.
Robinson, J. 1971. Economic Heresies: Old Fashioned Questions in Economic Theory . Basingstoke: Macmillan.
Sen, P. 2007. “Capital Inflows, Financial Repression and Macroeconomic Policy in India since reforms.” Oxford Review of Economic Policy 23 (2): 292–310.
Siddiqui, K. 1989. “Colonialism, Hunger and Backwardness in the Developing Countries.” [In Norwegian.] Materialisten , no. 3/4: 111–35.
Siddiqui, K. 1994. “World Bank vs Environment in the Developing Countries.” [In Norwegian.] Humanekologi , no. 3/4: 34–48.
Siddiqui, K. 1998. “The Export of Agricultural Commodities, Poverty and Ecological Crisis: A Case Study of Central American Countries.” Economic and Political Weekly 33 (39): 128–37.
Siddiqui, K. 2009a. “The Current Financial Crisis and Its Impact on the Emerging Economies—China and India.” Research in Applied Economics 1 (2): 1–28.
Siddiqui, K. 2009b. “The Political Economy of Growth in China and India.” Journal of Asian Public Policy 1 (2): 17–35.
Siddiqui, K. 2010. “Globalisation and Neo-liberal Economic Reforms in India: A Critical Review.” in Globalization in India: New Frontiers and Emerging Challenges , edited by S. K. Pramanick and R. Ganguly, 219–43. New Delhi: Prentice Hall.
Siddiqui, K. 2012. “Malaysia's Socio-Economic Transformation in Historical Perspective,” International Journal of Business and General Management 1 (2): 21–50.
Siddiqui, K. 2014a. “Contradictions in Development: Growth and Crisis in Indian Economy.” Economic and Regional Studies 7 (3): 82–98.
Siddiqui, K. 2014b. “Flows of Foreign Capital into Developing Countries: A Critical Review.” Journal of International Business and Economics 2 (1): 29–46.
Siddiqui, K. 2014c. “Modernisation and Displacement of Rural Communities in India.” Journal of Social Business 4 (2–3): 3–27.
Siddiqui, K. 2015a. “Trade Liberalisation and Economic Development: A Critical Review,” International Journal of Political Economy 44 (3): 228–47.
Siddiqui, K. 2015b. “Foreign Capital Investment into Developing Countries: Some Economic Policy Issues.” Research in World Economy 6 (2): 14–29.
Siddiqui, K. 2015c. “Economic Policy Issues.” Equilibrium Quarterly Journal of Economics and Economic Policy 10 (1): 9–32.
Siddiqui, K. 2016. “A Study of Singapore as a Developmental State.” in Chinese Global Production Networks in ASEAN , edited by Young-Chan Kim, 157–88. London: Springer.
Stiglitz, J. E. 2004. “Capital-Market Liberalization, Globalization, and the IMF.” Oxford Review of Economic Policy 20 (1): 57–71.
Stockhammer, E. 2015. “Rising Inequality as a Cause of the Present Crisis.” Cambridge Journal of Economics 39: 935–58.
Soederberg, S. 2015. “The BRICS' Dangerous Endorsement of Financial Inclusion.” in BRICS: An Anti-Capitalist Critique , edited by P. Bond and A. Garcia, 251–53. London: Pluto Press.
United Nations Development Programme. 2013. The Rise of the South: Human Progress in a Diverse World . New York: United Nations Development Programme.
Wade, R. 1990. Governing the Market: Economic Theory and the Role of Government in the East Asian Industrialisation . Princeton, NJ: Princeton University Press.
Williamson, J. G. 2007. “Global Capital Markets in the Long Run: A Review of Maurice Obstfeld and Alan Taylor's Global Capital Markets.” Journal of Economic Literature XLV: 400–09.
Zhang, X. 2009. “From Banks to Markets: Malaysian and Taiwanese Finances and Transition.” Review of International Political Economy 16 (3): 382–408.

Comments

Comment on this article

[1] Aizenman, J., and G. K. Pasricha. 2013. “Why Do Emerging Markets Liberalise Capital Outflows Control: Fiscal vs Net Capital Flows Concerns.” NBER Publications. Accessed March 16, 2017. www.nber.org/authors/joshua_aizenman.

[2] Aleem, A. 2010. “Transmission Mechanism of Monetary Policy in India.” Journal of Asian Economics 21: 186–97.

[3] Arestis, P., and M. Glickman. 2002. “Financial Crisis in South East Asia: Dispelling Illusion the Minskyan Way” Cambridge Journal of Economics 26 (2): 237–60.

[4] Balin, B. J. 2008. “India's New Capital Restrictions: What They Are, Why They Were Created and Have They Been Effective?” School of Advanced International Studies, John Hopkins University, Washington, DC.

[5] Bond, P., and A. Garcia, eds. 2015. BRICS: An Anti-Capitalist Critique . London: Pluto Press.

[6] Bonizzi, B. 2014. “Financialization in the Developing and Emerging Countries.” International Journal of Political Economy 42 (4): 83–107.

[7] Central Bank of Brazil (BCB). 2014. “Economic Indicators.” Accessed March 16, 2017. http://www.bcb.gov.br/.

[8] Chang, Ha-Joon, and I. Grabel. 2014. Reclaiming Development: An Alternative Economic Policy Manual . London: Zed Books.

[9] Crotty, J., and G. Epstein. 1999. “A Defence of Capital Control in the Light of Asian Financial Crisis.” Journal of Economic 33 (2): 427–33.

[10] Dymski, G. 2010. “Why the Subprime Crisis Is Different: A Minskyian Approach.” Cambridge Journal of Economics 34 (2): 239–55.

[11] Edison, H. J., and C. M. Reinhart. 2000. “Capital Controls during Financial Crises: The Case of Malaysia and Thailand.” Accessed July 25, 2016. https://www.federalreserve.gov/pubs/ifdp/2000/662/ifdp662.pdf.

[12] Epstein, G., ed. 2005a. Capitals Control in Developing Countries . Cheltenham, UK: Edward Elgar.

[13] Epstein, G. 2005b. “Introduction.” in Financialization and the World Economy , edited by G. Epstein, 3–16. Cheltenham, UK: Edward Elgar.

[14] Feldstein, M., and C. Horioka. 1980. “Domestic Saving and International Capital Flows.” Economic Journal 90: 314–29.

[15] Fine, B. 2014. “Financialization from a Marxist Perspective.” International Journal of Political Economy 42 (4): 47–66.

[16] Gallagher, K. 2014. “Countervailing Monetary Policy: Re-regulating Capital Flows in Brazil and South Korea.” Review in International Political Economy 22 (1): 77–102.

[17] Gallagher, K., and Y. Tian. 2017. “Regulating Capital Flows in Emerging Markets: The IMF and the Global Financial Crisis.” Review of Development Finance , June: 1–12. http://dx.doi.org/10.1016/j.rdf.2017.05.002.

[18] Ghosh, J., and C. P. Chandrasekhar. 2009. “The Costs of ’Coupling’: The global crisis and the Indian economy.” Cambridge Journal of Economics 33 (4): 725–39.

[19] Grabel, I. 2006. “International Private Capital Flows and Developing Countries.” in Rethinking Development Economics , edited by Ha-Joon Chang, 324–45. London: Anthem.

[20] IMF. 2012. Liberalising Capital Flows and Managing Outflows . Washington, DC: IMF.

[21] IMF. 2016. Capital Flows to Emerging Markets . Washington, DC: IMF.

[22] Kaltenbrunner, A., and J. P. Painceira. 2015. “Developing Countries' Changing Nature of Financial Integration and New Forms of External Vulnerability: The Brazilian Experience.” Cambridge Journal of Economics 39 (5): 1281–1306. doi:10.1093/cje/beu038.

[23] Kaplan, E., and D. Rodrik. 2001. “Did the Malaysian Capital Control Works?” Accessed July 25, 2016. http://www.nber.org/papers/w8142.

[24] Klein, M. W. 2012. “Capital Control: Gates and Walls, Brookings Institution.“ Accessed July 25, 2016. www.brookings.edu/~/media/Projects/…/Fall%202012/2012b_Klein.pdf.

[25] Levy-Orlik, N. 2012. “Financial Markets in Developing Countries.” in Handbook of Critical Issues in Finance , edited by J. Toporowsk and J. Mitchell, 113–20. Cheltenham, UK: Edward Elgar.

[26] Levy-Orlik, N. 2014. “Financialization and Economic Growth in Developing Countries: The Case of Mexican Economy.” International Journal of Political Economy 42 (4): 108–27.

[27] Magud, N., and C. M. Reinhart. 2006. “Capital Control: An Evaluation.” NBER working paper series. Accessed March 16, 2017. https://www.nber.org/papers/w11973.

[28] Minsky, H. P. 1986. Stabilizing and Unstable Economy . New Haven, CT: Yale University Press.

[29] Mishkin, F. S. 2004. “Can Inflation Targeting Work in Emerging Market Countries?” NBER Working Paper No. 10646, July. Accessed March 16, 2017. http://www.nber.org/papers/w10646.

[30] Mitchell, J., and J. Toporowski. 2014. “Critical Observation on Financialization and the Financial Process.” International Journal of Political Economy 42 (4): 67–82. doi:10.2753/IJP0891-191640404.

[31] Obstfeld, M. 1998. “The Global Capital Market: Benefactor or Menace?” Journal of Economic Perspectives 12 (4): 9–30.

[32] Ocampo, J. A., and J. E. Stiglitz, eds. 2008. Capital Markets Liberalization and Development . New York: Oxford University Press.

[33] Ostry, J. D., et al. 2010. “Capital Inflows: The Role of Control.” IMF. Accessed March 16, 2017. https://www.imf.org/external/pubs/ft/spn/2010/spn1004.pdf.

[34] Ostry, J. D., P. Loungani, and D. Furceri. 2016. “Neoliberalism: Oversold?” Finance and Development 53 (4): 9–30. June. Accessed March 16, 2017. http://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm.

[35] Reinhart, C. M., and K. S. Rogoff. 2011. “From Financial Crash to Debt Crisis.” American Economic Review 101: 1676–706.

[36] Robinson, J. 1971. Economic Heresies: Old Fashioned Questions in Economic Theory . Basingstoke: Macmillan.

[37] Sen, P. 2007. “Capital Inflows, Financial Repression and Macroeconomic Policy in India since reforms.” Oxford Review of Economic Policy 23 (2): 292–310.

[38] Siddiqui, K. 1989. “Colonialism, Hunger and Backwardness in the Developing Countries.” [In Norwegian.] Materialisten , no. 3/4: 111–35.

[39] Siddiqui, K. 1994. “World Bank vs Environment in the Developing Countries.” [In Norwegian.] Humanekologi , no. 3/4: 34–48.

[40] Siddiqui, K. 1998. “The Export of Agricultural Commodities, Poverty and Ecological Crisis: A Case Study of Central American Countries.” Economic and Political Weekly 33 (39): 128–37.

[41] Siddiqui, K. 2009a. “The Current Financial Crisis and Its Impact on the Emerging Economies—China and India.” Research in Applied Economics 1 (2): 1–28.

[42] Siddiqui, K. 2009b. “The Political Economy of Growth in China and India.” Journal of Asian Public Policy 1 (2): 17–35.

[43] Siddiqui, K. 2010. “Globalisation and Neo-liberal Economic Reforms in India: A Critical Review.” in Globalization in India: New Frontiers and Emerging Challenges , edited by S. K. Pramanick and R. Ganguly, 219–43. New Delhi: Prentice Hall.

[44] Siddiqui, K. 2012. “Malaysia's Socio-Economic Transformation in Historical Perspective,” International Journal of Business and General Management 1 (2): 21–50.

[45] Siddiqui, K. 2014a. “Contradictions in Development: Growth and Crisis in Indian Economy.” Economic and Regional Studies 7 (3): 82–98.

[46] Siddiqui, K. 2014b. “Flows of Foreign Capital into Developing Countries: A Critical Review.” Journal of International Business and Economics 2 (1): 29–46.

[47] Siddiqui, K. 2014c. “Modernisation and Displacement of Rural Communities in India.” Journal of Social Business 4 (2–3): 3–27.

[48] Siddiqui, K. 2015a. “Trade Liberalisation and Economic Development: A Critical Review,” International Journal of Political Economy 44 (3): 228–47.

[49] Siddiqui, K. 2015b. “Foreign Capital Investment into Developing Countries: Some Economic Policy Issues.” Research in World Economy 6 (2): 14–29.

[50] Siddiqui, K. 2015c. “Economic Policy Issues.” Equilibrium Quarterly Journal of Economics and Economic Policy 10 (1): 9–32.

[51] Siddiqui, K. 2016. “A Study of Singapore as a Developmental State.” in Chinese Global Production Networks in ASEAN , edited by Young-Chan Kim, 157–88. London: Springer.

[52] Stiglitz, J. E. 2004. “Capital-Market Liberalization, Globalization, and the IMF.” Oxford Review of Economic Policy 20 (1): 57–71.

[53] Stockhammer, E. 2015. “Rising Inequality as a Cause of the Present Crisis.” Cambridge Journal of Economics 39: 935–58.

[54] Soederberg, S. 2015. “The BRICS' Dangerous Endorsement of Financial Inclusion.” in BRICS: An Anti-Capitalist Critique , edited by P. Bond and A. Garcia, 251–53. London: Pluto Press.

[55] United Nations Development Programme. 2013. The Rise of the South: Human Progress in a Diverse World . New York: United Nations Development Programme.

[56] Wade, R. 1990. Governing the Market: Economic Theory and the Role of Government in the East Asian Industrialisation . Princeton, NJ: Princeton University Press.

[57] Williamson, J. G. 2007. “Global Capital Markets in the Long Run: A Review of Maurice Obstfeld and Alan Taylor's Global Capital Markets.” Journal of Economic Literature XLV: 400–09.

[58] Zhang, X. 2009. “From Banks to Markets: Malaysian and Taiwanese Finances and Transition.” Review of International Political Economy 16 (3): 382–408.

World Review of Political Economy

Financialisation and Economic Policy: The Issue of Capital Control in the Developing Countries

Journal

Article

History

Categories

Comment on this article