Financialization and Economic Policy: The Issue of Capital Control in the Developing Countries

In analysing the availability and performance of the foreign capital in developing countries too much attention has been given to the availability of capital and current account whilst far too little has been given to long-term investment, job creation and economic sovereignty. The current study centres on a critical review of available literature and a contribution to the substantive topics indicated in the title. The objective is to examine relevant empirical and theoretical studies. The study argues that following the adoption of capital liberalisation and neoliberalism, the economies of most developing countries have become more vulnerable. If China is excluded, we find that most developing economies have been unable to expand employment opportunities or reduce levels of poverty due to fear of capital flight. In recent years capital liberalisation policy has encouraged capital flight from their economies. After 2008, the IMF publicly express support for capital controls as a result of the global financial crisis and as the vulnerabilities associated with capital flows.