Policing the frontiers of finance

"Is foreign capital a luxury that poor countries can live without?WHEN Hank Paulson, America's treasury secretary, urged China to liberalise its capital markets earlier this month, he sensed a hardened reluctance in his hosts. ?There's no doubt that what is happening in the US markets is clearly giving the Chinese pause,? he said. America's subprime meltdown is not, it seems, the best advertisement for unfettered finance elsewhere.Against this backdrop, Dani Rodrik of Harvard University and Arvind Subramanian of the Peterson Institute, in Washington, DC, have published a timely reappraisal of financial globalisation.* They conclude that it is far from obvious that developing countries benefit much from opening up to global capital. In principle, the free flow of capital across borders makes funds available more cheaply to poor countries and, by lifting investment, boosts GDP and raises living standards. The trouble is, economists have struggled to establish a strong link between freer capital flows and speedier economic development. ..." (2008-4-10)

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