Cross-country regressions suggest little connection from foreign capital inflows to more rapid economic growth for developing countries and emerging markets. This suggests that the lack of domestic savings is not the primary constraint on growth in these economies, as implicitly assumed in the benchmark neoclassical framework. We explore emerging new theories on both the costs and benefits of capital account liberalization, and suggest how one might adopt a pragmatic approach to the process.
We are grateful to James Hines and Jeremy Stein for very useful comments and to Timothy Taylor for helping us sharpen the exposition. Yusuke Tateno provided excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Eswar S. Prasad & Raghuram G. Rajan, 2008. " A Pragmatic Approach to Capital Account Liberalization, " Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-72, Summer. citation courtesy of