Linkages among Capital Flows, Trade, and Growth in Developing Economies

  • Blog Post Date 01 March, 2012
  • IGC Research on India
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Maurice Obstfeld

University of California, Berkeley

International economic integration puts a country’s fortunes partly into the hands of others. When integration takes the form of financial interdependence, the potential domestic impact of external events is magnified manifold. This project documents the proliferation of gross international asset and liability positions and discusses some consequences for individual countries’ external adjustment processes and for global financial stability. In light of the rapid growth of gross global financial flows and the serious risks associated with them, one might wonder about the continuing relevance of the net financial flow measured by the current account balance. This project argues that global current account imbalances remain an essential target for policy scrutiny, for financial as well as macroeconomic reasons. Nonetheless, it is critically important for policymakers to monitor as well the rapidly evolving structure of global gross assets and liabilities.

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