Evidence and Policy Options
This chapter has two goals. First, it evaluates the empirical evidence of increasing the chances of financial crises induced by opening up developing countries to short-term capital inflows. Second, the chapter appraises the various proposals made for mitigating the severity of financial crises. It argues that there is solid evidence that financial opening increases the chance of financial crises. There is more tenuous evidence that financial opening contributes positively to long-run growth. Hence, there may be a complex trade-off between the adverse intermediate run and the beneficial long-run effects of financial opening. A commentary is also included at the end of the chapter.
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