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Ruling CapitalEmerging Markets and the Reregulation of Cross-Border Finance$
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Kevin P. Gallagher

Print publication date: 2014

Print ISBN-13: 9780801453113

Published to Cornell Scholarship Online: August 2016

DOI: 10.7591/cornell/9780801453113.001.0001

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Challenging Cooperative Decentralization

Challenging Cooperative Decentralization

(p.30) 2 Challenging Cooperative Decentralization
Ruling Capital

Kevin P. Gallagher

Cornell University Press

This chapter studies the problems that arise from the excessive increase of cross-border capital flows—one of which is the fact that global economic output is now being overtaken by the international asset positions. Even though capital investment is an essential ingredient for economic growth, there is a growing concern that certain capital flows can destabilize the financial systems of emerging-markets and developing countries (EMD) by causing asset bubbles, i.e. exchange rate appreciation during periods of massive capital inflows followed by sudden stops and capital flight that can jeopardize stability and growth. Hence, there had been debates over volatile capital flows, and the appropriate government policies relating to them. However, at the turnof the twenty-first century, many international financial institutions remained either hostile to or silent regarding regulating capital movements.

Keywords:   cross-border capital flows, global economic output, international asset positions, capital investment, financial systems, asset bubbles

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