Reading capital flows

Read the article in the Cayman Financial Review Magazine 

The literature on capital flows is, unfortunately, not particularly gripping reading. It is not something to take to the beach without a strong sunscreen, for the danger of dozing off and burning to a crisp if the sun is high.  

Nonetheless, there are some useful works. 

The two best works on why we live in a world of liberalised rules on capital flows – not something that was either inevitable or even likely – are Jeffrey Chwieroth, Capital Ideas: The IMF and the Rise of Financial Liberalization (Princeton University Press 2010) and Rawi Abdelal, Capital Rules: The Construction of Global Finance (Harvard University Press 2007).

Both are exhaustively researched, thorough and readable (not quite beach material, however). Chwieroth finds the engine of liberalisation in the IMF staff, most of whom are US educated economists. These economists imbibed faith in liberalising capital flows in graduate school and went on to promote the idea with zeal at the IMF. Abdelal focuses on the role of Europeans, particularly the French, in promoting liberalised rules on capital flows.

This seems counter-intuitive, but Abdelal makes a persuasive case that it was French leadership that led the EU to embrace liberalisation of capital flows. 

Put together with Peter L Bernstein’s two books, Capital Ideas: The Improbably Origins of Modern Wall Street (Wiley 2005) and Capital Ideas Evolving (Wiley 2007), which document the private sector response to liberalised capital rules and the reader can see the big picture. Bernstein, an investment consultant, is an excellent writer and his books are relatively easy reads.

Add Peter Cohan and U Srinivasa Rangan’s Capital Rising: How Capital Flows are Changing Business Systems All Over the World (Palgrave Macmillan 2010) and the picture is complete.

Capital Flight and Capital Controls in Developing Countries (Gerald A Epstein, ed) (Edward Elgar, 2005) collects essays by some of the critics of liberalised capital flows. These essays include some cross-cutting analyses but are primarily case studies of capital flight from South Africa, Turkey, Chile, Thailand, Brazil, China and the Middle East/North Africa generally.

Prof Epstein, of the University of Massachusetts at Amherst, the centre of radical political economy in the United States, organised his graduate students and recruited some additional experts to contribute. This is as good a summary of the critics’ point of view as can be found in one place.

Finally, Brendan Brown’s What Drives Global Capital Flows? Myth, Speculation and Currency Diplomacy (Palgrave Macmillan 2006) is an excellent summary of what we know about topics from black money to financial round-ripping. Brown, a chief economist for Mitsubishi UFJ Securities International in London, writes admirably clearly and concisely.

 

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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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