Thread by @michaelxpettis

Very good piece by @arvindsubraman and @rodrikdani arguing that for developing countries like China, more open capital markets and foreign borrowing “will lead only to more volatility, more frequent crises, and less overall dynamism.” I would add that...
prosyn.org/8JRW50w

@arvindsubraman @rodrikdani ...this is not just a problem for developing countries, but also for advanced ones. In fact at Bretton Woods both JM Keynes and HD White, amidst their many disagreements, argued for totally open borders for the flow of ideas, mostly open borders for the flow of trade, and...

@arvindsubraman @rodrikdani ...mostly closed borders for the flow of capital.
The theoretical justification for unfettered capital flows is that capital always seeks out its most productive use, in which case free capital flows will maximize global productivity, even if the benefits aren’t always fairly...

@arvindsubraman @rodrikdani ...distributed. But when much if not most cross-border investment isn’t driven by economic fundamentals but rather by speculative capital, investment fads, yield hunger, interest rate bets, currency bets, flight capital, central-bank reserve accumulation, contagion, and so on,...

@arvindsubraman @rodrikdani ...unfettered capital flows mainly mean that local balance sheets are badly distorted by inflows and outflows that do nothing to raise productivity and that create huge domestic costs.