What a Difference a CAFTA Makes
The IMF just released a new research paper about the effect
Central American countries entitled “Spillovers to
And guess what the culprit is? According to the paper,
Spillovers [from the
economy] have typically been transmitted through both financial and trade links, while remittances were not found to play an important role in transmitting business cycles across borders. U.S.
The author of this paper also discusses a paper published in
2005 that “predict[ed] that CAFTA-DR would cause a significant increase in the
Coincidentally, the IMF also just released a staff position paper that reversed the IMF’s longstanding opposition to controls on capital inflows that could reduce financial volatility. According to the New York Times,
The other paper, released Friday, said that in the aftermath of the crisis, officials were “reconsidering the view that unfettered capital flows are a fundamentally benign phenomenon.”
“Concerns that foreign investors may be subject to herd behavior, and suffer from excessive optimism, have grown stronger; and even when flows are fundamentally sound, it is recognized that they may contribute to collateral damage, including bubbles and asset booms and busts,” the fund’s deputy director of research, Jonathan D. Ostry, wrote, along with five other authors.
Are these two papers a sign that the IMF wants to turn over a new leaf and pull back from its insistence on excessive economic liberalization for developing countries? Let’s hope so.