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Development Economics and Structuralist Macroeconomics

Development Economics and Structuralist Macroeconomics

Essays in Honor of Lance Taylor

Edited by Amitava Krishna Dutt

Lance Taylor is widely considered to be one of the pre-eminent development economists in the world and is known for his work on development planning, macroeconomics of development, stabilization policy, and the global economy. He has also been the major force behind structuralist economics, which is seen by many to be a major alternative to orthodox development economics and policy prescriptions. The essays in this volume, written by well-known scholars in their own right, make contributions to each of these areas while honoring the contributions made by Lance Taylor.

Chapter 9: Selling the family silver or privatization for capital inflows: the dual dynamics of the balance of payments and the exchange rate

Amit Bhaduri

Subjects: development studies, development economics, economics and finance, development economics


9. Selling the family silver or privatization for capital inflows: the dual dynamics of the balance of payments and the exchange rate Amit Bhaduri* I INTRODUCTION The ideology of market-driven economic development is gaining ground at a time when the ‘globalization of capital’ is also proceeding at a dizzying pace. Multinational corporations, banks and other financial institutions like mutual funds are major players in this process characterized by overwhelmingly large private capital flows. The daily volume of foreign exchange transactions is estimated currently (circa 2001) at nearly 2 trillion dollars in spot and future markets together including various ‘options’and ‘derivatives’-related financial transactions (Felix, 1996). This daily flow is enough to wipe out the entire stock of reserves of all the Central Banks put together and less than 2 per cent of this flow is related to trade, while an even smaller percentage is accounted for by direct foreign investment. The overwhelmingly large proportion of this transaction is in the form of ‘foot-loose’ portfolio capital, often of a short-term nature (cf. Neal, 1990). The process of globalization of capital dominated by private players seems to present unprecedented opportunities and dangers at the same time to the developing economies. Privatization of the public sector is often considered a window of opportunity in this context. The programme of privatization proves to be a convenient way of attracting private foreign capital. While this provides opportunities for faster growth through relaxing the constraint of foreign exchange, it is intertwined with the danger that such...

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