In Praise of Fragmentation
Most cross-country studies have found no evidence that capital-account liberalization is good for growth. Indeed, the most successful development stories in economic history – Japan and South Korea – featured significant domestic financial repression and capital controls, which accompanied several decades of rapid growth.
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LONDON – Emerging markets are back in the spotlight. Investors and banks are suddenly unwilling to finance current-account deficits with short-term debt. South Africa, for example, has had to increase interest rates, despite slow economic growth, to attract the funding it needs. Turkey’s rate increase has been dramatic. For these and other emerging countries, 2014 may prove to be a turbulent year.