International Capital Mobility

1752 Words4 Pages

International Capital Mobility

International Capital mobility- the free flow of investment financing from one country to another is a hot topic in the world of economics. A common question that rises when discussing this matter is, does capital mobility benefit developing countries? As with most other subjects the answers tend to vary.

In this paper I will shine light on the point of view of two respectable economists concerning the positive and negative affects associated with capital mobility. Also, how developing countries may or may not benefit in the long run. James Bradford DeLong a Professor of Economics at the University of California at Berkeley (DeLong, Biography, 2004) and Joseph Stiglitz a leading economic educator who is recognized around the world (Stiglitz, Biography, 2004).

The standard crisis developing countries face is, a high demand for goods and services, with high money growth, high government spending, high wages, and high inflation. All while exports are low and imports are high. The standard solution is slow money growth and low government spending. Unfortunately these cures take time and during the transition the country may borrow from the IMF to finance the trade imbalance.

DeLong’s stance on the subject is that, “large international capital mobility is a good thing. It raises the earnings of savers and lowers the cost of capital to investing firms, it gives the rich an extra source of insurance and the poor an extra source of knowledge of modern industrial high productivity technologies, and shutting off capital flows creates enormous opportunities and incentives for corruption which deprives societies of an early warning signal that their governments are following dangerous and destructiv...

... middle of paper ...

... point out the ugly truth that it seems to only look good on paper, but when it comes to how the process plays out it looks grim. As DeLong states in his article, The Economists’ Voice, the results of international capital mobility seems to be, “ a flawed situation that may still be the best we can do”.

Bibliography

Bradford DeLong, “The Economists’ Voice”

http://www.bepress.com/ev/vol1/iss/art1

Bradford DeLong, “Joe Stiglitz is Losing His Argument”

http://econ161.berkely.edu/movable_type/archives/001397.html

Bradford DeLong, “Biography of J. Bradford DeLong”

www.j-bradford-delong.net/career/onepagebiography.html

Joseph Stiglitz, “Biography of Joseph E.Stiglitz”

www.gsb.Columbia.edu/faculty/jstiglitz/bio.cfm

Joseph Stiglitz, “ What I learned at the World Economic Crisis”

http://econ.cudenver.edu/Beckman/econ4410/stiglitz world%20crisis.doc

Open Document