Financial openness in developing countries and capital flows determination
Abstract
This paper discusses two strains of analysis regarding financial openness in developing
countries. Mainstream economists argue that openness brings several advantages to
these countries if liberalizing reforms have been made in the proper sequence, with liberalization
of capital flows as the last reform adopted. The central hypothesis assumed is that the
flows are guided by economic fundamentals. An alternative approach, with a post-Keynesian
theoretical basis, emphasizes that in the present context of financial globalization and predominance
of portfolio flows, capital flows are not guided by fundamentals but by short
term perspectives and by factors that are exogenous to the specific country and, thus, can be
reverted at any time, with negative impacts on the developing country.
JEL Classification: F65; E12; F43.
Keywords: Liberalization capital flows globalization