is a senior economist in the Macro-Financial Linkages Unit of the International MonetaryFund’s Research Department.
is a Senior Fellow at the BrookingsInstitution, the Tolani Senior Professor of Trade Policyin the department of applied economics and manage-ment at Cornell University and a research associate atthe National Bureau of Economic Research.
is a Professor of Economics atHarvard University and a Nonresident Senior Fellow atthe Brookings Institution.
is a Professor of Finance and Economicsand N.T. Wang Professor of Chinese Business andEconomy at the Columbia Business School.
Authors’ note:This paper is prepared for the Handbook of Development Economics, edited by Dani Rodrik and Mark R.Rosenzweig. We would like to thank Stijn Claessens, Marco Terrones, and our discussant, Dani Rodrik, for theirdetailed suggestions. We also thank conference participants for providing helpful comments at the HandbookPreconference. Dionysis Kaltis and Yusuke Tateno provided excellent research assistance. The views expressedin this paper are solely those of the authors and do not necessarily reﬂect those of the IMF, IMF policy or theBrookings Institution.