5. Most economists favor lowering barriers to trade. But even among mainstream economists there is far less support for financial liberalization—the removal of government regulation of financial and capital markets—than for trade liberalization. “It is a seductive idea,” says free-trader Jagdish Bhagwati, “but the claims of enormous benefit from free capital mobility are not persuasive.” In addition, capital market liberalization entails substantial risks because it strips away the regulations intended to control the flow of shortterm loans and contracts in and out of a country. The IMF, on the other hand, remains an unabashed supporter of free financial markets, arguing that they are a precondition for a developing country attracting long-term foreign investment.

a. Who has it right?

b. Is financial liberalization a good or bad policy, especially for developing countries?