Should developing countries aspire to increasing levels of capital market liberalization?
Stiglitz: As the economies of the more advanced nations become more open, it’s very hard to control capital flows. So it isn’t a question of aspiring, but rather feasibility. As countries become more integrated into the global economy, it becomes more difficult to intervene in some of these capital flows. However, the underlying facts are that, for developing countries, capital market liberalization is not associated with faster economic growth and is associated with greater volatility. So the lesson is that one has to proceed very cautiously down that path. In many countries, the form that interventions in capital markets takes can give rise to distortions and to corruption. So you’re playing a very fine game where you’re trying to maintain the stability of the economy but you’re also trying to avoid the adverse effects that some of the regulatory regimes have had in the past. MM: Is there an overall approach or specific mechanisms that you think are generally advisable? Stiglitz: The
