Financial openness in developing countries and capital flows determination

Daniela Magalhães Prates ()

Brazilian Journal of Political Economy, 1999, vol. 19, issue 1, 58-76

Abstract: This paper discusses two strains of analysis regarding financial openness in developingcountries. Mainstream economists argue that openness brings several advantages tothese countries if liberalizing reforms have been made in the proper sequence, with liberalizationof capital flows as the last reform adopted. The central hypothesis assumed is that theflows are guided by economic fundamentals. An alternative approach, with a post-Keynesiantheoretical basis, emphasizes that in the present context of financial globalization and predominanceof portfolio flows, capital flows are not guided by fundamentals but by shortterm perspectives and by factors that are exogenous to the specific country and, thus, can bereverted at any time, with negative impacts on the developing country. JEL Classification: F65; E12; F43.

Keywords: Liberalization; capital flows; globalization (search for similar items in EconPapers)
Date: 1999
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