This article explains the problem of adjustment to the challenges of globalization in terms of the logic underpinning four distinct policy constraints, or trilemmas, and their interrelationship, and in particular the disturbances that arise from capital flows. The analysis of a policy trilemma was developed first as a diagnosis of exchange rate problems (the incompatibility of free capital flows with monetary policy autonomy and a fixed exchange rate regime); but the approach can be extended. The second trilemma we describe is the incompatibility between financial stability, capital mobility and national policy choice over exchange rates. The third example extends the analysis to politics, and looks at the strains in reconciling democratic politics with monetary autonomy and capital movements. Finally, we examine the security aspect and look at the interactions of democracy with capital flows and international order. The trilemmas, in short, depict the way that domestic monetary, financial, economic and political systems are interconnected with the international order, or the impossible policy choices at the heart of globalization. Frequently, the trilemmas conjure up countervailing anti-globalization tendencies and trends.

Using unique data about capital flows from the public social security institute ZUS (Zakład Ubezpieczeń Społecznych) to private pension funds OFEs (Otwarte Fundusze Emerytalne) in Poland, we find that their impact, as a group of large institutional investors, on stock returns is statistically significant in short-term but no such effect exists in the long-run. This result is consistent with the temporary price pressure hypothesis of Ben-Rephael et al. (2011). We analyze the capital transfers, in the form of the aggregated pension contributions collected from all employees in the entire Polish economy, from the ZUS to the private pension funds, which further invest this capital on the stock market. The average time for the subsequent reaction of stock prices is found to be 4 days. The trading strategy based on this result generates superior outcomes in comparison with the passive strategy, which further confirms the price impact of capital inflows. Our findings are not only relevant for stock market investors but they also have broader policy implications for stock market regulators and for the national pension regulators.

Current data provide macroeconomic information for a large number of countries and for long periods of time (macropanels). In such panels, slope heterogeneity and cross-section dependence (CSD) are the rule rather than the exception, leading the fixed effects slope estimators to be biased and inconsistent. This paper analyzes gross capital flows to emerging economies employing the Augmented Mean Group (AMG) model to account for slope heterogeneity and CSD. The results suggest that the AMG performs better than the fixed effects model and that not only country heterogeneity is important to analyze capital inflows to emerging economies, but also are the differences among the types of capital inflows.

The historical evolution of the EU–US unemployment-rate gap is often explained in the literature in terms of asymmetric changes in labor-market institutions. There may well also be asymmetries in population aging, which may generate international capital flows and have substantial impacts on relative unemployment rates. In this paper, we ask whether the combination of institutions, aging, and capital flows explains the rise in the unemployment gap between 1960 and 2010. To this end, we set up a two-region OLG model with search unemployment in which we introduce the historical and projected changes in labor-market institutions and demographics. We show that asymmetric institutional changes alone can reproduce a large part of the historical rise in the unemployment gap. However, this result no longer holds once we add asymmetric aging in closed economies. We find this initial result again, and in an even stronger form, when we allow for international capital mobility.

Slave traders forced more than 1.65 million captive Africans aboard illegal transatlantic slave ships during the nineteenth century. This article focuses on the final phase of this brutal traffic, between 1850 and 1866. It argues that slave traders sustained their illicit industry, in large part, by strategically coordinating their financial arrangements against a rising tide of international suppression. One key tactic was for slave trade investors in the United States, Cuba, Africa, and Iberia to lower the risks of interdiction by joining forces and co-financing voyages. Another was to combine with an international cast of merchants and bankers, who helped them launder slave trade capital and transmit it to their distant allies. This capital was concealed within broader currents of global commerce, which was, in turn, spurred by the growth of free trade in the nineteenth century. These myriad alliances and capital flows undergirded the trade until its final extinction in the 1860s.

This paper examines sovereign lending to Latin America and the Caribbean from 1820 to 1913. We examine four waves of capital flows where defaults were followed by a return to market access. In spite of extended default, countries kept promising high returns that attracted international investors again and again: financial autarky thus gave way to eras of high integration to global markets as measured by sovereign risk pricing. We discuss imperfections of the sovereign debt institutional context in the region and discuss a menu of options that some countries used to seek funds in the global financial markets after defaults. The parallel with the modern Latin American and Caribbean sovereign bond market experience is striking.

Sovereign wealth funds have been investing governments' foreign assets for decades, although it is only in recent times that such funds have emerged as managers of large ‘excess reserves’. Since the crisis however, the sources of funding for sovereign wealth funds have evaporated, while advanced economies are competing for capital injections from these funds. At the same time, the concerns about excessive investment of sovereign wealth funds in advanced economies that were widespread prior to the crisis, are now being voiced less frequently. Against this background, this article provides a reassessment of the growth prospects of sovereign wealth funds. Although the growth path for these funds indeed needs to be revised substantially, there are no grounds to believe that sovereign wealth funds will become less important players in global financial markets over the future, as the structural drivers behind the accumulation of large foreign assets in emerging economies remain in place. Hence, sovereign wealth funds are likely to continue growing and increase their relative importance in global financial markets. Therefore, it remains imperative to resume the efforts – that seem to be partly halted by the current economic and financial crisis – to build a global governance framework for sovereign wealth funds.

On admet généralement que la mobilité internationale serait devenue très forte à la suite de la libéralisation et de l'intégration financière des vingt dernières années. De façon surprenante, la plupart des travaux empiriques « à la Feldstein-Horioka » ne valident cette hypothèse. Une reconsidération de ces estimations conduit toutefois à des résultats neufs. Les tests, même classiques, confortent l'idée d'un accroissement à long terme de la mobilitéet la tendance s'est accentuée depuis le début des années quatre-vingt. Tous les pays industrialisés, grands ou petits, sont concernés par cette augmentation; la globalisation financière marque néanmoins une frontière entre ces pays et les pays émergents pour lesquels l'investissement demeure dépendant de l'épargne intérieure. Dans l'ensemble, la décorrélation entre investissement et épargne se manifeste par une plus grande autonomie des flux de capitaux. La relation linéaire entre investissement et épargne pivote autour d'un point fixe représenté par le taux d'épargne mondial. Le positionnement des pays par rapport à ce point fixe permet d'établir une typologie robuste qui remet en cause l'idée reçue selon laquelle tous les pays seraient égaux devant la globalisation financière.

This article compares the process of corporate structural reforms in Japan and South Korea in the late 1990s and raises two questions. Why have state-led economies such as Japan and South Korea engaged in politically costly corporate structural reforms in the late 1990s? What explains the variation in the reform process between Japan and South Korea?

I argue that the process of structural reforms in state-led economies has been the result of state mediation of global financial forces. The rise of portfolio capital inflows increases the pressure for domestic reforms, a change that is common to Japan and Korea in the late 1990s. However, the actual success of structural reforms depends on the ability of the elite bureaucracy to mediate among between global investors, domestic interest groups and the general public. In contrast to Korea, Japan exhibits a low level of bureaucratic control over the legislative agenda and a situation of tripolar deadlock.

The evidence presented here includes quantitative data, government documents, and legislative records as well as information gathered from over 100 interviews with bureaucrats, politicians, business leaders, labor leaders, and other actors in the two countries.