The False Promise of Financial Liberalization

Free capital flow over the past 15 years was supposed to help developing nations, writes Dani Rodrik, political economy professor with Harvard University, with excess funds moving from wealthy nations to worthy projects around the world, smoothing out boom-and-bust cycles and decreasing corruption. However, Rodrik points out that the developing nations with the most successful economies – China, India, Vietnam, Brazil – relied least on foreign financing and actually became net lenders. Rodrik warns that capital inflow into an emerging economy leads to currency appreciation, decreasing profits and entrepreneurship: “Nothing can kill growth more effectively than an uncompetitive currency, and there is no faster route to currency appreciation than a surge in capital inflows.” – YaleGlobal