Essays in Honour of J. George Waardenburg
Edited by Servaas Storm and C. W.M. Naastepad
Chapter 8: Globalization of capital markets: Some analytical and policy issues
1 Mihir K. Rakshit 1. INTRODUCTION The 1970s marked a watershed in the development of global ﬁnancial markets in more ways than one. First, the Bretton Woods system came to an end with the ﬂoating of the yen and major European currencies against the dollar in March 1973, and the gradual switchover by more and more countries to ﬂexible exchange rate regimes. Second, with the move towards capital account convertibility by most industrialized nations and the accumulation of huge external assets by oil producing countries, there was a sharp rise in the quantum of international capital movements. Third, and the most important for our purpose, there occurred a quantitative and also a qualitative change in the ﬂow of foreign capital to (non-oil producing) developing countries. Capital inﬂows in these countries registered a quantum jump during the period 1972–83 and again from the late 1980s.2 What is no less signiﬁcant, while the earlier capital ﬂows to developing countries consisted almost entirely of oﬃcial and government guaranteed loans, since 1973 private capital ﬂows have assumed increasing importance and there has been a sharp decline in loans from oﬃcial sources.3 These developments in international ﬁnancial markets, together with the trend towards lowering of barriers to trade in goods and services, were widely expected to promote eﬃcient allocation of world resources and add signiﬁcantly to the economic prosperity of all countries, both developed and developing. Emerging market economies in general were expected to reap substantial beneﬁts...
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