chapter  1
14 Pages

The benefits and risks of capital account opening in developing countries

ByUri Dadush, Dipak Dasgupta

Capital account opening and integration with global financial markets can enable countries to raise investment above levels that can be financed by domestic savings. Countries can also gain access to a broader range of financing options, including longer-term and equity finance, improve the allocation of their assets and diversify risks and smooth expenditures in the face of temporary shocks. Financial integration may also increase discipline of governments to correct policy weaknesses and benefit the economy in general due to the technological, management and labour productivity improvements associated with foreign investment.