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By and large, the surge in capital inflows has boosted consumption rather than investment in recipient countries, exacerbating economic volatility and making painful financial crises more frequent.The best argument for free capital mobility remains the one made nearly two decades ago by Stanley Fischer, then the International Monetary Fund's No. 2 official and now vice chair of the U.S. Federal Reserve. Advocates of capital mobility assume that poor economies have lots of profitable investment opportunities that are not being exploited because of a shortage of investible funds.Capital inflows in economies that suffer from low investment demand fuel consumption, not capital accumulation.In these economies, capital inflows may well retard growth rather than stimulate it.The implication is that capital controls may need to be blunt and comprehensive, rather than surgical and targeted, to be truly effective.The world needs case-by-case, hardheaded pragmatism, recognizing that capital controls sometimes deserve a prominent place.
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