Monday, October 1, 2012

3 October 2012: Systemic Outflow of Capital from Emerging Economies and Enabled International Credit Lines

Gurbachan Singh
Independent Economist

Commercial banks in developed countries routinely extend credit lines to firms. However, they hardly extend any credit lines to banks in emerging economies to take care of possible sudden outflow of funds from their economies. This is puzzling as the reserve-backing of credit lines in the latter case is small, given that an outflow from emerging economies is an inflow into developed economies. This paper explores the role of ‘international agency costs’ to resolve the puzzle. The paper suggests that the first-best policy solution is an enabling international government. The second-best solution is international mediators (like the IMF and central banks). The third-best solution is a Pigouvian subsidy on credit lines, if the externality is large enough. The paper also discusses possible extensions of the model.

Date: October 3, 2012
Time: 03:30 P.M.

NCAER Conference Room
National Council of Applied Economic Research
Parisila Bhawan, 11, Indraprastha Estate
New Delhi-110002(INDIA)


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Please join us for tea and snacks after the seminar. For queries, please contact Ms Sudesh Bala at or on 011-2345-2669.

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