Book Précis Hot Money, Cold Money: Managing Global Capital Flows in Chile, South Korea, and Turkey

Financial opening and the liberalization of capital flows across national borders, one of the most salient aspects of globalization, has had a significant role in shaping the economic and social development trajectory of developing and emerging economies since the 1980s. This book manuscript seeks to determine the conditions under which emerging economies embrace as well as curtail capital mobility. It distinguishes between policies that favor hot money (e.g., portfolio investment flows) over cold money (e.g., foreign direct investment), policies that eliminate restrictions on cold money while restraining hot money, and policies that tend towards full capital mobility without making a distinction between hot and cold money flows. Through a comparative-historical examination of financial opening in Chile, South Korea, and Turkey and by drawing on 36 interviews with high-level policy-makers, it illustrates how these policies can be seen to fall into two different trajectories of financial opening: (1) expansionary (observed in South Korea and Turkey), which is prone to ignoring the risks associated with embracing capital mobility, and (2) limited (observed in Chile), characterized by policies targeting long-term economic growth and stability rather than economic expansion in the short-term. An expansionary trajectory occurs when state elites lack disciplinary power over capitalists, and when the state’s fiscal power and economic coordination capacity are weak or weakened prior to financial opening episodes. In contrast, limited financial opening occurs when state elites can discipline the consumption and investment demands of capitalists and upper middle classes through an alliance with export sectors. This directly depends on state’s economic coordination capacity and fiscal resources. This book makes an important sociological contribution to the existing research on the globalization of finance and its consequences for developing and emerging economies. First, it demonstrates the perilous nature of mobilizing capital in emerging economies and how the inherent risks are linked to the economic growth and social development strategies implemented in those countries. Second, in contrast to the presuppositions of neoclassical economics, it shows that states weak in infrastructural power with powerful capitalist classes oriented towards consumption suffer from the globalization of finance.