Rising Tide

• Author: Raghuram Rajan
• Position: Professor of finance at the University of Chicago's Booth School of Business and a former governor of the Reserve Bank of India
• Pages: 15-19

June 2019 | FINANCE & DEVELOPMENT 15

Global cooperation is needed to reap the benefits and avoid

the pitfalls of cross-border capital flows

Raghuram Rajan

Rising

Tide

C

ross-border capital ows are neither an un mitigated blessing nor an

undoubted curse. Used judiciously, they can be benecial to recipient

countries, making up deciencies in the availability of long-term

risk capital and reducing gap s in local corporate governance. ey

can also be benecial to sending countries, oering investment avenues for

savings generated by aging populations.

Of course, capital ows ca n also be problematic. ey can come at the wrong

time, adding further credit to a raging investment boom and fueling asset-

price bubbles. ey can come in the wrong form— held as short-term claims

on corporations or the government, with the option to leave at a moment’s

notice. And they can leave at t he wrong time, when the lure of higher interest

PHOTO: ISTOCK / BIHAIBO