Capital Account Liberalization and Poverty

Abstract

Although poverty reduction has become the central focus of the multilateral institutions, research into macroeconomic policy has lagged behind and continues to be almost solely growth focused. The implications of financial market regulation for social policy goals are far from well understood, but the same approaches continue to dominate. This article aims to address this weakness and sets out a framework of linkages between capital account regulation and poverty. The key conclusion is that while the growth benefits of liberalization are far from clear for poorer countries, there may also be significant costs in poverty terms. While further research is required in a number of areas identified, the main policy implication is that capital controls must be retained as part of the toolbox of pro-poor macroeconomic policymaking. Social policy implications of macroeconomic policies must be made a central goal of research.

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