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Capital Market Liberalization and Development$
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José Antonio Ocampo and Joseph E. Stiglitz

Print publication date: 2008

Print ISBN-13: 9780199230587

Published to Oxford Scholarship Online: May 2008

DOI: 10.1093/acprof:oso/9780199230587.001.0001

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From the Boom in Capital Inflows to Financial Traps

From the Boom in Capital Inflows to Financial Traps

(p.101) 4 From the Boom in Capital Inflows to Financial Traps
Capital Market Liberalization and Development

Roberto Frenkel

Oxford University Press

This chapter examines the performance of highly indebted countries from the point of view of their links with the international financial market. Although the more analytical parts of the chapter do not refer specifically to Latin America, it considers the regional emergent markets' experiences as examples which provide historical background. The paths followed by some countries in the globalization process led them to situations of segmented integration. Persistently high risk premiums place a country in a sort of financial trap, with a high interest rate and low growth, leaving it highly vulnerable to contagion and other sources of volatility, and imposing narrow limits to the degrees of freedom on economic policy. The chapter suggests that domestic policy implemented during the process of financial integration account for most of the variation in the situations of the different emergent markets in the early 2000s.

Keywords:   external debt, financial crises, Latin America, country risk premium, financial traps, debt sustainability, financial globalization

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