Liberalization, Financial Instability and Economic Development

About the Book

Weighing up the costs and benefits of economic interdependence in a finance-driven world, Liberalization, Financial Instability and Economic Development argues that globalization, understood and promoted as absolute freedom for all forms of capital, has been oversold to the Global South, and that the South should be as selective about globalization as the North. This book challenges the orthodoxy on the link between financial deepening and economic growth, as well as that between the efficiency of financial markets and the benefits of liberalization. Yılmaz Akyüz urges developing countries to control capital flows and asset bubbles, preventing financial fragility and crises, and recommends regional policy options for managing capital flows and exchange rates.
 

About the author

Yılmaz Akyüz is Chief Economist at the South Centre, an intergovernmental think tank for developing countries based in Geneva, Switzerland.


Contents

Introduction

PART ONE
LIBERALIZATION, STABILITY AND GROWTH

Chapter I
Financial Liberalization: The Key Issues
A.    Introduction
B.    Interest Rates and Savings
C.    Financial Liberalization and Deepening
D.    Allocative Efficiency
E.    Productive Efficiency and Cost of Finance
F.    Regulation of Finance and Financial Stability
G.    Options in Financial Organizations
H.    External Liberalization and Financial Openness
I.    Conclusions

Chapter II
Managing Financial Instability in Emerging Markets: A Keynesian Perspective
A.    Introduction
B.    The Keynesian Instability Hypothesis and Financial Cycles
C.    Investment and Jobs over the Financial Cycle
D.    The Policy Problem
E.    Capital Flows and Countercyclical Monetary Policy
F.    Reserve Accumulation as Self-Insurance
G.    Financial Regulations, Capital Controls and Risk Management
H.    Conclusions

Chapter III
From Liberalization to Investment and Jobs: Lost in Transition
A.    Global Economic Integration and the Labor Market
B.    Capital Formation, Growth and Employment
C.    Managing Profits and Accumulation
D.    Macroeconomic Policy: What Policy?
E.    Financial Instability, Investment and Employment
F.    Policy Priorities

Chapter IV
Exchange Rate Management, Growth and Stability: National and Regional Policy Options in Asia
A.    Introduction
B.    Exchange Rate, Trade and Growth
C.    Capital Flows, Exchange Rates and the Real Economy
D.    Managing Capital Flows and Exchange Rates
E.    Recent Experience in Asia
F.    Regional Monetary Cooperation for Stability
G.    Conclusions

Chapter V
Reforming the IMF: Back to the Drawing Board
A.    Introduction
B.    The Original Rationale and the Postwar Evolution of the IMF
C.    Mission Creep into Development Finance and Policy
D.    Trespassing in Trade Policy
E.    Crisis Management and Resolution: Bailouts or Workouts?
F.    Restructuring IMF Lending and Supplementing Resources
G.    Ineffectiveness and Asymmetry of Fund Surveillance
H.    Governance: Making the Fund a Genuinely Multilateral Institution
I.    Summary and Conclusions


PART TWO
THE GLOBAL ECONOMIC CRISIS AND DEVELOPING COUNTRIES

Chapter VI
The Current Global Financial Turmoil and Asian Developing Countries
A.    Introduction
B.    The Role of Finance in the Recent Global Expansion
C.    Expansion and Crisis in the United States
D.    Capital Flows and Vulnerability in Asia
E.    External Shocks and Policy Options in Asia
F.    Conclusions

Chapter VII
The Global Economic Crisis and Asian Developing Countries: Impact, Policy Response and Medium-Term Prospects
A.    Introduction
B.    The Great Financial Bubble, Global Expansion and Imbalances
C.    Asian Vulnerabilities and Spillovers from the Crisis
D.    Policy Response and Recovery
E.    Medium-Term Prospects and Policy Challenges
F.    Conclusions: Policy Issues and Lessons

Chapter VIII
The Staggering Rise of the South?
A.    Introduction and Summary
B.    The Growth Record
C.    Global Economic Conditions
D.    Impact on Macroeconomic Balances in DEEs
E.    Impact on Growth in DEEs
F.    The Role of South-South Trade and China
G.    Crisis and Recovery
H.    Sustainability and Vulnerabilities
I.    Conclusions: Reconsidering Policies and Strategies