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Capital Market Liberalization and Development$
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José Antonio Ocampo and Joseph E. Stiglitz

Print publication date: 2008

Print ISBN-13: 9780199230587

Published to Oxford Scholarship Online: May 2008

DOI: 10.1093/acprof:oso/9780199230587.001.0001

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Capital Market Liberalization and Development

Capital Market Liberalization and Development

Chapter:
(p.1) 1 Capital Market Liberalization and Development
Source:
Capital Market Liberalization and Development
Author(s):

José Antonio Ocampo (Contributor Webpage)

Shari Spiegel

Joseph E. Stiglitz (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199230587.003.0001

This introductory chapter presents the arguments of the book and provides a framework for the issues related to capital market liberalization (CML). The first section addresses an important set of market failures that are likely to be significant in developing countries, and shows how they provide a rationale for state intervention in capital markets. The second section analyses the effects of capital market liberalization on developing countries, showing how the pro-cyclical nature of short-term capital flows can lead to financial and macroeconomic volatility and undermine growth. The third section introduces alternative policy options for interventions in capital markets, including direct and indirect capital controls and international regulations. The last section concludes by arguing that CML has high economic and social costs in developing countries, whereas its assumed benefits in terms of both economic stability and growth are unlikely to materialize.

Keywords:   capital account liberalization, capital flows, capital controls, market failures, developing countries

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