(2003-09-16) International Capital Markets

Tyler Cowen summarizes a paper by Ken Rogoff on the International Development implications of freeing Capital Market-s. Many of the benefits kick in only after countries have achieved a particular level of financial integration. Improvements in integration, starting from low levels of integration and development, often have increased the volatility of consumption. Trade integration is associated with faster increases in health and infant mortality, but financial openness is not.

Rogoff also wrote an "Open Letter to Joseph Stiglitz". Second, you put forth a blueprint for how you believe the IMF can radically improve its advice on macroeconomic policy. Your ideas are at best highly controversial, at worst, snake oil... Throughout your book, you betray an unrelenting belief in the pervasiveness of Market Failure-s, and a staunch conviction that governments can and will make things better. You call us "market fundamentalists." We do not believe that markets are always perfect, as you accuse. But we do believe there are many instances of Government Failure as well and that, on the whole, government failure is a far bigger problem than market failure in the developing world. Both World Bank President Jim Wolfensohn and IMF Managing Director Horst Kohler have frequently pointed to the fundamental importance of governance and institutions in development. Again, your alternative medicines, involving ever-more government intervention, are highly dubious in many real-world settings.

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