), neither our financial markets nor our currencies are always ready to channel such capital flows (nor their inherent volatility). The financial systems continue to be small, debt markets in local currency are still in their infancy, and secondary markets are not liquid enough.
In fact, Prasan, Rajan and Subramanian (2006) conclude that, in contrast with predictions from standard models usually calibrated for developed countries, emerging countries that committed themselves to external savings have not grown faster in the long term. This difference is attributable to the local financial systems’ inability to efficiently allocate foreign capital. 5.