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This chapter examines the implications of the liberalization of capital outflows in China, India, Brazil, and South Africa (CIBS) for other developing countries. It focuses on their prospects of attracting not only foreign direct investment (FDI), but also portfolio capital flows from CIBS. To inform the discussion, two steps are taken: first, in order to identify the type of capital flows that might come from CIBS, the chapter briefly describes capital account liberalization measures undertaken by CIBS to date and future intended liberalization. Second, it maps geographic distribution of outward FDI and foreign portfolio investment in the recent past, which are taken as possible predictors of future flows. The chapter shows that portfolio investment goes mainly to OECD countries and offshore financial centres, and only a small share to developing countries. But, within developing countries, CIBS' neighbouring countries have shown a greater ability to attract this type of investment, compared with other developing countries.

This chapter investigates the impact of globalization on job security, labor standards, and the welfare state. It shows that neither the flow of capital and labor across national boundaries nor the increasing prominence of multinational corporations are major threats to the social and labor-market policies of rich democracies. It examines whether the nation-state is eroding as a unit of social-science analysis and as the center of political action and evaluates the impact of so-called alliance capitalism.

The EMU by contrast is a dubious candidate for an optimal currency area because although it too trades intensively within the region, national work restrictions greatly impair intra-European labor mobility, and supranational fiscal power is feeble because rich members don’t want to assume heavy financing burdens during turbulent times. The Eurozone borrowers, known as the GIIPS countries can extricate themselves from their plight with a “internal depreciation” or “internal devaluation,” but this is little consolation because it places an immense burden on prices, wages, and productivity growth in an adverse financial environment The maxim that the rich should pay at the supranational level means that the ECB, perhaps supplemented with new institutions, will grudgingly provide loans to prevent the GIIPS countries from defaulting on their sovereign debt. They also could provide “solidarity” grants by analogy with foreign catastrophe aid.

The chapter surveys major financial crises that took place in the 1990s and early 2000s: (a) the credit implosion leading to a severe banking crisis in Japan and a long lasting liquidity trap; (b) the meltdown of foreign reserves triggered by foreign hot-money flight from the frothy economies of developing Asian nations with fixed exchange rate regimes economies.