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International Capital Mobility Once Again

Mark Thoma points us to David Wessel asking Stanley Fischer about the benefits of international capital mobility:

Economist's View: Diminished Expectations: David Wessel of the Wall Street Journal says expectations of benefits from allowing financial capital to flow freely between countries are fading:

Ten years ago, with spectacularly bad timing, finance ministers and central bankers gathered in Hong Kong and declared that encouraging the free flow of capital across borders should become as much a part of the International Monetary Fund's mission as encouraging trade in goods and services. That was in September 1997, in what turned out to be the opening act of the Asian financial crisis...

[A]nxiety about unfettered flows of money could return if recent market turmoil persists, economies falter and politicians react to public suspicion... that globalization means huge profits for Wall Street, hedge funds and private-equity investors and uncertain benefits for workers. Amid all this, intellectual architects of the world financial order are rethinking the case for allowing money to move wherever it wants.... The theory was that capital would flow from rich to poor countries because returns would be higher there, and that would spur growth in the poor countries.... But money is actually flowing heavily from poor nations (China) to rich countries (the U.S.), the reverse....

The rationale for free flows of capital is undermined and the advantages are less than evident. So are the benefits worth the risks.... Stanley Fischer says they are.... [T]he benefits "have much more to do with your world view, how your people look at the world, and what they need to do to prosper."... In short, exposure to global capital markets... forces financial markets and firms to be more efficient, offers businesses and consumers better terms for borrowing and lending, reduces openings for corruption and discourages short-sighted domestic economic policies. It isn't the money; it's the collateral benefits...

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