Making Markets Work How Domestic Capital Market Reform Can Improve Access to Global Finance资料.doc

Making Markets Work: How Domestic Capital Market Reform Can Improve Access to Global Finance Peter Blair Henry* and Peter Lombard Lorentzen** April 2003 1. Introduction Over a decade ago Robert Lucas asked the following question: why doesn’t capital flow from rich to poor countries? His point was simple. Less-developed countries have lower capital-to-labor ratios than do rich countries. Under standard neoclassical assumptions, this means that the rate of return to capital in these countries is higher than in the developed world. In order to equalize returns, profit-seeking capitalists should export capital to the developing world until risk-adjusted rates of return are equalized. In other words, market pressures should lead to a positive net resource transfer to less-developed countries, thus boosting their growth rates, and Lucas was encouraging us to think about the obstacles that prevented this flow from occurring. At the time Lucas asked his question, the prevailing wisdom was that capital flows to developing countries were a good idea. More than ten years later, intellectual opinion has shifted. A heated debate over capital account liberalization has followed in the wake of financial crises in Asia, Russia and Latin America. Opponents of the process now argue that capital account liberalization invites speculative hot money flows, increases the likelihood of financial crises, and brings no discernible economic benefits. Some economists have gone so far as to assert that open capital markets may be detrimental to economic development (Bhagwhati, 1998; Rodrik, 1998; Stiglitz 2002). With the debate over the wisdom of free capital flows still raging, it is at least a little presumptuous to write a paper that explains how developing countries can increase both their integration with world capital markets and access to external finance without first addressing the underlying assumption that this is beneficial. Section 2 of the paper establishes that there