Global Capital and National Institutions: Crisis and Choice in the International Financial Architecture »

All managers face a business environment in which international and macroeconomic phenomena matter. Understanding these phenomena - the determinants of capital flows, the effects of foreign capital on host countries, the impact of exchange-rate movements, and the genesis of financial and currency crises - is a crucial aspect to making informed managerial decisions. Adverse macroeconomic phenomena can have a catastrophic impact on a firm's performance as demonstrated by the many strong companies destroyed by successive crises in Latin America and Asia and the even recent U.S. mortgage crisis. Yet at the same time, such episodes also create business opportunities - and not just for the hedge funds and speculators that profit from them. Managers who possess a coherent framework for analyzing these phenomena will enjoy a competitive advantage.

This book presents a series of case studies taught in the Harvard Business School course, Institutions, Macroeconomics, and the Global Economy (IMaGE). The cases focus on key recent events that have shaped the way economists think about these subjects. The cases also cover events that occurred during the last three decades as they hold important lessons for the business environment that managers face today. They have also been designed to provide readers with an appreciation of the critical role of institutions in affecting patterns of international capital flows and the abilities of government to manage them effectively.

Acknowledgements v

Introduction 1

I Determinants And Effects of International Capital Flows 35

Introduction: Institutions, Policies, and Capital Flows 39

Botswana: A Diamond in the Rough (HBS No. 703-027) 41

Policies and Effects of Foreign Capital 65

Foreign Direct Investment and Ireland's Tiger Economy (HBS No. 706-007) 67

Foreign Direct Investment (HBS No. 703-018) 97

Capital Flows: Benefactor or Menace? 109

Transforming Korea Inc.: Financial Crisis and Institutional Reform (HBS No. 708-007) 111

Chronology of the Asian Financial Crisis (HBS No. 708-001) 143

II Policies and Strategies for Harnessing The Benefits of Financial Globalization 159

Managing Capital Inflows 165

Capital Controls in Chile in the 1990s (A) (HBS No. 705-031) 167

Capital Controls In Chile in the 1990s (B) (HBS No. 705-032) 195

Capital Controls (HBS No. 702-082) 207

Managing Capital Outflows 213

Malaysia: Capital and Control (HBS No. 702-040) 215

Capital Flows and Monetary Policy in Emerging Markets 247

Brazil 2003: Inflation Targeting and Debt Dynamics (HBS No. 704-028) 249

Capital Flows and Tax Policy 273

Rovná Daň: The Flat Tax in Slovakia (HBS No. 707-043) 275

Incentives to Investments and the Role of Institutions 311

Special Economic Zones in India (A): Public Purpose and Private Property (HBS No. 709-027) 313

Tata Motors in Singur: Public Purpose and Private Property (B) (HBS No. 709-029) 339

Capital Mobility and the International Financial Architecture 343

Creditor Activism in Sovereign Debt: "Vulture" Tactics or Market Backbone (HBS No. 706-057) 345

International Capital Markets and Sovereign Debt: Crisis Avoidance and Resolution (HBS No. 707-018) 371

Capital Flows Between Rich and Poor Countries 399

Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (A) (HBS No. 707-029) 401

Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (B) (HBS No. 707-040) 431

III Challenges And Policies of Large Economies 435

Monetary Policy in Japan 441

Kinyuseisaku: Monetary Policy in Japan (A) (HBS No. 708-017) 443

Kinyuseisaku: Monetary Policy in Japan (B) (HBS No. 709-056) 479

Exchange Rate Policy in China 487

China: To Float or Not to Float? (A) (HBS No. 706-021) 489

China: To Float or Not to Float? (B): Timeline of Changes Relevant to the Chinese Renminbi (HBS No. 706-022) 519

China: To Float or Not to Float? (C): Esquel Group and the Chinese Renminbi (HBS No. 706-023) 531

China: To Float or Not to Float? (D): Bank of America's Strategic Investment in China Construction Bank (HBS No. 706-031) 539

China: To Float or Not to Float? (E): ABB Investment in China (HBS No. 706-035) 549

China: To Float or Not to Float? (F): Alcatel and Strong Chinese Competition (HBS No. 706-036) 559

The U.S. Current Account Deficit and Global Imbalances 571

The U.S. Current Account Deficit (HBS No. 706-002) 573

The U.S. Current Account Deficit, Spreadsheet (HBS No. 706-701) 605

The U.S. Subprime Mortgage Crisis 611

The U.S. Subprime Mortgage Crisis: Policy Reactions (A) (HBS No. 708-036) 613

The U.S. Subprime Mortgage Crisis: Policy Reactions (B) (HBS No. 709-045) 633

Sovereign Wealth Funds: For Profits or Politics? (HBS No, 708-053) 653

Global Financial Crisis 671

The First Global Financial Crisis of the 21st century (HBS No. 709-057) 673