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November 25, 2009

Coordinate Capital Controls

Posted by Arvind Subramanian in Capitol Flows/Financial Crisis, Economic Development Tags: ,

This op-ed originally appeared in the Business Standard.

By Arvind Subramanian / New Delhi November 25, 2009,

Around the peak of the global financial crisis, in late November 2008, I wrote a column which concluded: “Some time in the not-too-distant future, when the storm clouds recede, when the rupee is at, say, Rs 50 to the dollar, Indian exports will be hypercompetitive, and Indian growth prospects will be restored to pre-crisis levels of 8-9 per cent. At that stage, capital, attracted by the higher returns, will once again come pouring into India. That is almost certain (Nov. 26, 2008).” Read More…

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September 30, 2009

The IMF beyond Istanbul

Posted by Arvind Subramanian in Capitol Flows/Financial Crisis, Global Development, International Financial Institutions, International Monetary Fund Tags: ,

This post originally appeared in the Business Standard.

Wanted: An Asian Managing Director and new approaches to capital flows.

The IMF will strike a triumphalist tone at its forthcoming annual meetings in Istanbul. Some of this will be warranted because the IMF’s record in responding to the global financial crisis was commendable, even if its record leading up to it was less stellar (see http://www.iie.com/realtime/?p=942 for more details). Read More…

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August 10, 2009

It’s Not All Downhill from Here: The Uphill Flow of Skill-Intensive Goods and FDI from Developing Countries

Posted by Arvind Subramanian in Economic Growth, Global Development Tags: , , , , , ,

We tend to think of globalization in the following way: the rich world exports financial capital, technology, sophisticated goods, and entrepreneurial and managerial skills in the form of foreign direct investment (FDI) to developing countries; the latter, in turn, export people, resources, and low-skilled goods to the rich world.

Well, it turns out that globalization no longer respects these clean distinctions. Many recent studies have examined movement of capital from developing to high-income countries, with the assumption that only flows of finance could defy our expectations. But, increasingly, even flows of of sophisticated goods and FDI are going in both directions, a phenomenon Aaditya Mattoo and I call “Criss-crossing Globalization” in our latest paper. Countries such as China are exporting sophisticated goods to OECD countries, and countries such as India, Brazil, and South Africa are exporting FDI to the rich world. Think of Indian TATA’s takeover of the UK’s Jaguar, China’s Lenovo’s acquisition of IBM, Brazil’s success exporting commercial aircraft to high-income countries, and the growing exports of skilled services from Israel and India to OECD markets, and it’s clear that something significant is happening.

We call these flows of skill-intensive goods and FDI from poor countries to rich countries “uphill flows”—uphill because they are defying the normal pattern of comparative advantage.

What are the consequences for countries that send goods and services uphill? Our preliminary work suggests that such countries experience positive economic growth as a result. If this is true, it suggests that policies that promote skill-intensive patterns of production and specialization—even if they go against natural comparative advantage—may need to be considered by developing countries.

A second consequence—and one that will perhaps play out more in the future—relates to the political economy of international trade and investment negotiations. When flows are two-way, perceived objectives of high-income and developing countries are more in sync with one another, which makes the political economy much more conducive to reaching agreement on common international rules. This could be good for all countries, developed and developing.

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