Articles by Ramkishen S Rajan

Foreign direct investment (FDI) is attracted into countries for different reasons. At a general level, in order for a country to be more attractive to investors, there is a need to create an enabling environment by reducing so-called hassle costs. But what are these costs? A new study involving 32 developing economies indicates there exists a statistically and economically significant negative nexus between administrative costs and FDI to GDP ratio after controlling for other factors.

While in the long run south-east Asia will benefit from a prosperous and economically strong and stable large neighbour, the issues tend to be more complex in the short and medium terms. South-east Asian countries have hitherto been able to adjust to China's initial opening up between 1990 and 1997 fairly successfully. However, the crisis of confidence following the regional crisis of 1997-98 and loss of forward momentum with regard to regional integration among ASEAN members and a feeling of vulnerability to an increasingly volatile global economy are some of the reasons for heightened concerns about the economic ascendancy of China.

What is the nexus between trade liberalisation and poverty? This question can be subdivided into two parts. One, recognising that growth is a necessary condition for a sustained reduction in poverty, what is the link between trade and growth. Two, since growth is by no means a sufficient condition for poverty reduction, what is the nexus between trade and income distribution?

Theory offers a number of plausible benefits from international financial liberalisation. However, a careful examination of available empirical literature on the subject suggests much less reason to be sanguine about the benefits. In view of the widelynoted concerns regarding short-term indebtedness, a strong case can be made for the setting of prudential limits on the amount of short-term debt that a country can accumulate. Somewhat less clear is what steps need to be taken to reduce vulnerability due to uncovered long-term foreign currency borrowing.

Rapid reserve depletion has been one of the defining features of currency crises and reserve levels ex ante have showed up as a significant variable in many studies examining the predictability of crises. This would appear to suggest that countries need to look beyond domestic reserve and debt management to buttress their international liquidity positions to effectively protect themselves from the vagaries of international capital markets.