Capital Flows and Crises, by Barry Eichengreen. Cambridge: MIT Press. 2003. Cloth, ISBN 0262050676. 377 pages.
Eichengreen begins his exploration of the relationship between capital flows and crises with the observation that the Asian economic and financial crisis of the late 1990s revealed profound disagreement among economists with respect to capital mobility and capital market deregulation. On one hand, many (if not most) economists see international capital mobility as a logical aspect of the liberalization and development of domestic financial markets, which should lead to increased efficiency in the flow of funds and so promote economic growth. On the other hand, many economists observed that the increased mobility of capital after the 1970s seemed causally connected to the increased frequency of interconnected banking and foreign exchange crises in the last three decades of the twentieth century; and some economists argued that there was no evidence that capital account liberalization had promoted economic growth in emerging market economies. Eichengreen and his co-authors (three of the chapters are co-authored) attempt to evaluate these conflicting views.
The book consists of eleven chapters organized into four parts. Part 1, "Introduction" (two chapters), provides an introduction to the issues and a history of capital flows in four periods from the 1880s to the turn of the twenty-first century. Part 2, "Capital Account Liberalization" (two chapters), surveys and analyzes empirical studies of the causes and effects of capital market liberalization and presents the authors' own empirical analysis. Part 3, "Crises" (five chapters), defines and explores speculative attacks on currencies, currency and banking crises, and contagion in currency crises. Three of the chapters compare and analyze crises in Europe (the EMS crisis of the early 1990s), Argentina (1880s), and Mexico (mid 1990s) and the Asian crises of the late 1990s. Part 4, "Policy Implications" (two chapters), evaluates the arguments for and against capital controls and proposes guidelines for emerging market economies with respect to financial market liberalization and currency systems.
Chapter 1, "Introduction," presents a historical overview of four distinct capital market regimes: (1) Pre-1914, characterized by the free mobility of capital and very high net flows from the developed economies toward the Americas, Asia, and Africa. Net flows compared with GDP were...