Emerging Markets and the Re-regulation of
Cross-Border Finance
In Ruling Capital, Kevin P. Gallagher demonstrates how several emerging market and developing countries (EMDs) managed to reregulate cross-border financial flows in the wake of the global financial crisis, despite the political and economic difficulty of doing so at the national level. Gallagher also shows that some EMDs, particularly the BRICS coalition, were able to maintain or expand their sovereignty to regulate cross-border finance under global economic governance institutions. Gallagher combines econometric analysis with in-depth interviews with officials and interest groups in select emerging markets and policymakers at the International Monetary Fund, the World Trade Organization, and the G-20 to explain key characteristics of the global economy.
Gallagher develops a theory of countervailing monetary power that shows how emerging markets can counter domestic and international opposition to the regulation of cross-border finance. Although many countries were able to exert countervailing monetary power in the wake of the crisis, such power was not sufficient to stem the magnitude of unstable financial flows that continue to plague the world economy. Drawing on this theory, Gallagher outlines the significant opportunities and obstacles to regulating cross-border finance in the twenty-first century.
Among the key findings and arguments in the book are that:
- The regulation of cross-border finance is justified now more than ever, with top economists now endorsing such regulations.
- Emerging market and developing countries have devised a new generation of regulations to tackle the main channels of financial instability due to cross-border finance, and these regulations have been a modest success.
- For the global financial system to become more stable, emerging markets and industrialized countries will need to re-regulate cross-border finance at ‘both ends.’
- There is relatively more ‘policy space’ to regulate cross-border finance without scorn from the International Monetary Fund, thanks to the efforts of emerging markets and pioneering economists within the IMF.
- These new regulations are threatened by the expanding scope of many international trade and investment agreements—particularly those advocated by the United States such as the Trans-Pacific Partnership Agreement.
Order the book on Amazon
Watch Kevin Gallagher discuss the book at the Institute for New Economic Thinking
Read Kevin Gallagher’s related piece in the American Prospect
Watch Kevin Gallagher speak on global financial regulation at CIGI