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Financial Globalization and Economic Development: Toward an Institutional Foundation

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Author Info
Machiko Nissanke () (School of Oriental and African Studies (SOAS), University of London)
Howard Stein (Roosevelt University, Chicago)
Abstract

On the promise of enormous benefits from financial openness, many developing countries have embraced financial globalization by adopting internal and external financial liberalization. Yet, despite the rhetoric of its proponents, there is little evidence of enhanced development finance or any concomitant improvement in economic development. We critically examine the mainstream theoretical rationale for financial globalization and liberalization as well as their explanations of the widespread financial instability and crises that have been associated with financial openness. The paper also draws on broader theoretical traditions to explain the ubiquity of recent financial crises. Pointing to an alternative more dynamic analysis of the symbiotic relationships between finance and economic development, we propose an institutional-centric approach that forms a basis for understanding the transformation required for financial development. For development to occur, financial flows need to feed into real sector circuits to enhance expansion and accumulation, whilst national flows need to tap into international flows to complement the speed and capacity of the domestic flows.

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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 29 (2003)
Issue (Month): 2 (Spring)
Pages: 287-308
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Handle: RePEc:eej:eeconj:v:29:y:2003:i:2:p:287-308

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Related research
Keywords: Developing Countries; Development; Finance; Financial Liberalization;

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Find related papers by JEL classification:
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Edgar Demetrio Tovar García, 2007. "Globalización del capital y desarrollo institucional del sistema financiero," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 9(17), pages 75-107, July-Dece. [Downloadable!]
  2. Philip Arestis & Machiko Nissanke & Howard Stein, 2003. "Finance and Development: Institutional and Policy Alternatives to Financial Liberalization," Economics Working Paper Archive 377, Levy Economics Institute, The. [Downloadable!]
  3. Ilene Grabel, 2003. "Predicting Financial Crisis in Developing Economies: Astronomy or Astrology?," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 243-258, Spring. [Downloadable!]
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