Exploring the Link between Capital Account Liberalization and Poverty

The severe repercussions of the series of financial crises since the
1997 Asian financial crisis have sparked intense debate on capital
flows in emerging market economies leading to numerous studies on the
internal and external factors that led to the different crisis episodes
as well as the policy responses before, during, and after a crisis.
Yet, what remains unexplored is the impact of capital account
liberalization on poverty and inequality, particularly the social costs
of capital account liberalization even before the crisis strikes (i.e.,
during normal times).

The severe repercussions of the series of financial crises since the
1997 Asian financial crisis have sparked intense debate on capital
flows in emerging market economies leading to numerous studies on the
internal and external factors that led to the different crisis episodes
as well as the policy responses before, during, and after a crisis.
Yet, what remains unexplored is the impact of capital account
liberalization on poverty and inequality, particularly the social costs
of capital account liberalization even before the crisis strikes (i.e.,
during normal times).

Taking off from the Cobham study which argues that many significant
costs "are associated not with crisis periods, but rather periods of
capital inflow," this paper focuses on the macroeconomic channels in
which capital account liberalization could affect poverty. It asserts
that while it is difficult to establish a direct link between capital
account liberalization and poverty, the link can be established
indirectly through macroeconomic mechanisms such as fiscal policy,
monetary policy, and exchange-rate policy.

Read full text (.pdf, 46kb, 9pp.)

No comments yet.