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Myth and Reality of Financial Flows

Ashwini Deshpande

By Sunanda Sen
Palgrave Macmillan, London, 2003, pp. 203, price not stated.


Developments in the financial markets have a peculiar characteristic: thanks to the massive and continuous media coverage of financial markets, their operations appear transparent and accessible. (So widespread is the coverage of these markets, that often when I talk of ‘markets’ in general, my students think that the reference is to financial markets. I have to remind them that when used without a qualifier, markets are supposed to refer to exchange of commodities, produced in the real sector). At the same time, when one tries to unravel the mysterious ways in which financial markets particularly at the global level operate, the process turns out to be highly complex, obscure and often, defying common sense and logic. It is to Sunanda Sen’s credit that she has produced this excellent volume that covers developments in the global financial sector from the early 1970s to the present, a period that can, without exaggeration, be called the era of global finance. In doing so, she has superbly illustrated the myriad facets of financial markets, the variety of financial instruments and the many mutations that international financial flows have seen over the period. She thus makes a very difficult topic accessible both to the specialist as well as to the interested lay reader.   Sen has covered both the theoretical literature in the field as well as the empirical experience, thus appealing to economists of all leanings and to the non-specialists. This is not an easy task: a lot of commentaries on global finance tend to either be excessively theoretical, obscure and in complete disregard of the actual experience on the ground or just a simple aggregation of numbers, without any underlying theoretical structure. Her theoretical sections are comprehensive, covering a range of theoretical approaches. Thus, this volume is a refreshing addition to an area that is much researched and written about. That brings me to the other novelty of the volume: most writings on the subject perpetuate the mainstream thinking on global finance, one that advocates unbridled financial liberalization for the developing world, presenting a selective and erroneous view of history that presumably proves the beneficial effects of financial liberalization on growth. She breaks this myth conclusively by questioning the mainstream approach and by arguing that financial volatility is a major characteristic of financial flows today, one that is coupled with a deep crisis and stagnation in the real sector of the advanced economies.   ...

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