Gian Milesi-Ferretti, Enrica Detragiache, A. Tweedie, Michael Mussa, Barry Eichengreen, and Giovanni Dell'Ariccia
INTERNATIONAL MONETARY FUND
This paper addresses the potential gains and risks of open capital markets by first looking at what classical economic theory suggests about the benefits of capital mobility and then examining the counterarguments arising from problems of incomplete information and other distortions. It shows that the risks of removing controls on flows of capital across national borders are similar to those associated with removing controls on domestic financial institutions. The paper then explores how to manage liberalization to minimize the risks and maximize the benefits.