Macroeconomic conditions and opening up ‐ Argentina, Chile and India: A comparative study

Abstract

This paper analyses the economic liberalization process in India that started in 1991. The focus of this paper is primarily on the sequencing of the opening up process and the importance of keeping the fiscal deficit under control. The paper argues that if a reforming economy is exposed to financial flows in the early stage of the reform process it will face either the risk of high inflation (under a fixed exchange rate) or the appreciation of the real exchange rate and the worsening trade balance (under a flexible exchange rate). The paper compares the reform process in India, Argentina and Chile, and concludes that the reform failed in Argentina and not in Chile, because Argentina opened up the real and financial sectors simultaneously and failed to control the fiscal deficit. Evidence from India suggests that India followed the right sequence with a substantial control over capital flows but had very high levels of fiscal deficit.

Citation

Chakraborty, D. (1999), "Macroeconomic conditions and opening up ‐ Argentina, Chile and India: A comparative study", International Journal of Social Economics, Vol. 26 No. 1/2/3, pp. 298-311. https://doi.org/10.1108/03068299910229712