India: Managing Openness for a Rapidly Developing Domestic Market
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Figure 18.5. Cross-Country Comparison of Capital Account Openness, Selected Countries, 2000–07 a. Lane and Milessi-Ferreti de facto openness average, 2000–07
300
percent
200
100
Jo rd M an al a Ar ysi ge a nt Ru in ss a ia n Ch Fe i le d So erat ut io n h Ph Afri ili ca pp i Th nes ai la nd Ko Pe re ru a, In Rep do . ne sia Br Co az lo il m bi a Ch in M a ex Ira ic o n, Isl In am di ic a Re p.
0
country
b. Chinn and Ito de jure openness average, 2000–07
3
2
index
1
0
–1
an Ch In do ile ne s M ia ex ic o B Ph ra ili zil p Ko pin e re a, s Re M p. al ay Th sia a ila Ru ss Arg nd ia e n n Fe tin de a ra Co tio lo n m bi a Ch in a So In ut di a h Af ric Tu a rk ey
Jo rd
Pe
ru
–2
country Sources: Lane and Milessi-Ferreti 2007; Chinn and Ito 2008.
management. Proponents of capital account liberalization have argued that it creates opportunities for diversifying portfolios, smoothing consumption, sharing risk, and addressing contracts and payments in trade. Furthermore, the threat of capital outflows in the face of opportunistic policies could have a disciplining effect on policy makers (see, for example, Fischer 1998 and Summers 2000). Conversely, critics point toward the East Asian crises at the end of the 1990s and maintain that speculative capital flows are
extremely volatile for reasons outside the control of individual countries and that opening an economy to such capital results in financial crises. They argue, therefore, for the imposition of frictions to limit the short-term cross-border trade in financial assets (see, for example, Bhagwati 1998, Rodrik 1998, and Stiglitz 2000). In a recent paper, the International Monetary Fund—long-time champion of capital account opening—seems to concur with this view (Ostry et al. 2010). Furthermore, current thinking emphasizes the