This paper by Joseph E. Stiglitz reviews the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses. The author argues that the recent financial crisis, particularly in East Asia, has highlighted the risks associated with rapid and unregulated capital market liberalization. The crisis has led to higher unemployment, lower real wages, and significant economic instability. Stiglitz suggests that the case for capital market liberalization is based on efficiency arguments, but historical evidence does not support these claims. Instead, the crisis has shown that such liberalization can lead to greater instability and adverse economic consequences. The paper concludes by discussing various ways to intervene in short-term capital flows, such as imposing taxes on short-term inflows and outflows, and regulating the banking system to stabilize financial flows. Stiglitz emphasizes the need for effective interventions to equate social and private costs and to prevent the negative externalities caused by volatile capital movements.This paper by Joseph E. Stiglitz reviews the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses. The author argues that the recent financial crisis, particularly in East Asia, has highlighted the risks associated with rapid and unregulated capital market liberalization. The crisis has led to higher unemployment, lower real wages, and significant economic instability. Stiglitz suggests that the case for capital market liberalization is based on efficiency arguments, but historical evidence does not support these claims. Instead, the crisis has shown that such liberalization can lead to greater instability and adverse economic consequences. The paper concludes by discussing various ways to intervene in short-term capital flows, such as imposing taxes on short-term inflows and outflows, and regulating the banking system to stabilize financial flows. Stiglitz emphasizes the need for effective interventions to equate social and private costs and to prevent the negative externalities caused by volatile capital movements.