ABSTRACT
The great opportunity from globalization is that standards of living worldwide can grow as more and more countries exploit the gains from trade, and as capital flows to its most productive uses. The great danger is that globalization may carry with it new sources of financial instability and may exacerbate financial disruptions when they do occur. A number of observers are giving significant emphasis to this twin-crisis argument. A twin crisis can occur when two factors are present. First, an emerging economy must provide its banks with implicit or explicit government guarantees. The second factor in a twin crisis is that banks in this emerging economy must rely on short-term loans from abroad denominated in dollars or other hard currencies. The gains from international capital mobility are just too great, and the costs in economic growth of restricting this mobility too large, to consider capital controls as a permanent solution to the troubles associated with globalization.
