Economics and capital mobility

The second is that the impossible trinity presents an incomplete policy menu that leaves much off the table.

International capital mobility refers to

It starts with a discussion on the context within which capital mobility is crystallized. It then concludes with a synthesis of the approaches. However, beyond geographical lenses are politics, culture and other sociological vagaries which provide some equally useful insights about the relationship between capital mobility and economic development. Gomory, R. One source of micro inefficiency is noise traders De Long et al. Walker, R. Sorens , J. In hindsight, that U-turn signaled a permanent movement away from explicitly Keynesian policies in Europe. American Enterprise Association.

That makes capital mobility both a means and an end. Hence, it is established, as the literature suggests, that the extent to which capital is diffused through these mediums largely depends on the similarities and differences between the geographical areas between which a particular kind of capital is being diffused.

Capital mobility and monetary policy

Svensson, J. Kragelund, P. There are gaps that need to be filled in the theoretical literature as far as the understanding of the relationship between capital mobility and economic development. That work is infused with the laissez-faire predispositions of those authors, and as such the impossible trinity frame traps policy debate by obscuring other possibilities. African Affairs, , 92— Interestingly, consumption falls due to increased saving, but consumption is higher in future periods due to increased income from higher returns on foreign investment. Brazilian Journal of Political Economy, Vol. This will be followed by an analysis of the stance taken by the proponents of the key orthodox political economy perspectives and how their ideas explain the relationship between capital mobility and economic development. The Neo-classical Economic Approach Generally, the conventional neo-classical economic perspective argues that capital mobility, through trade and FDI, maximizes the use of natural resources by promoting financial development and increasing global productive efficiency and growth. The pressures that capital mobility places on policy space and choice can again be understood through the Tiebout local public goods model. However, this "collateral benefits" argument is challenged by lack of empirical support regarding a robust positive association between financial liberalization and growth Kose et al. However, given the complex narrative associated with the capital mobility and economic development it will be important to synthesize the political economy theories and approaches into a coherent whole to create a more nuanced picture. This problem is amplified in a globalized world in which capital flows are larger and in which economies more sensitive to exchange rates owing to an increase in the share of exports and imports in GDP. Rather, improved infrastructure such as development of transportation and communication systems may influence the pace at which capital mobility occurs and eventually affect regional economic development process Marx, ; Kinda,

With the advent of the new and emergent economies and capital hubs known as the BRICS, Lee observed, that the inclusion of the new sources adding on to such as to US or European countries must be seen in this light; as an extension of capital and markets, with greater diversity and options.

In the run-up to the credit crunch, there was a growth in lending and also a growth in global imbalances — e.

perfect capital mobility and fixed exchange rates

In effect, the focal point of cultural political economy is the incorporation of interpretations, as found policy discourses as well as political and economic imageries, in the analysis of how strategies and projects are institutionalized.

Figure 4 shows the case of a developed economy that opens itself to capital mobility. Following are some research works which bring out how some key social ingredients which may influence the extent to which capital may flow and its possible implications for economic development.

Mobility of capital examples

However, these arguments are limited as they fail to recognize that these mediums can operate simultaneously. Neo-liberals tend to automatically assume they will be used badly and make that assumption a centerpiece of opposition against capital controls. However, the impact is larger when neo-Walrasian concerns are introduced into classical macro models. In a regime of fixed exchange rates capital inflows compel official intervention to prevent appreciation, which can give rise to undesirable monetary expansion that can cause generalized and asset price inflation. However, it is now clear that price deflation can be destabilizing and can actually aggravate the problem of inadequate AD and unemployment Tobin, , ; Palley, b, c. Conventional classical macroeconomics dismisses this Keynes problem on the grounds that price deflation will ensure full employment. These counter arguments are illustrated in Figure 5 and can be labeled 1 the Keynesian macroeconomic efficiency argument, 2 the neo-Walrasian market failure argument, and 3 the neo-Marxian social structure of accumulation argument. The claim is capital will tend to exit countries with bad governance and flow toward countries with good governance. The political model, on the other hand, acknowledges the importance of political institutions in ensuring the effectiveness of capital mobility. A last problem with open capital markets concerns the impact of capital inflows on internal balance. Houndmills, Basingstoke: Palgrave Macmillan. Thus, inflows drove interest rates down and increased asset prices, giving rise to strong financial accelerator effects that amplified the boom in the NT sector. More services and features. Harvey, D. Aitken, B.

Definition of capital mobility — easy for physical assets and finance to move across geographical boundaries.

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Capital Mobility, Exchange Rates and Economic Crises