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Financial globalization: a macroeconomic angle

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  • Dilip K. Das
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    Abstract

    Purpose – The objective of this paper is to provide a macroeconomic assessment of the impact of global financial integration over the economies that are undergoing financial integration. Design/methodology/approach – The paper focuses on several issues. It begins with examining the evidence whether financial globalization elevates growth performance of the integrating economy and supports it macroeconomic stability. It takes a nuanced view and divides the impact of financial integration into direct and indirect benefits. Second, it scrutinizes whether there are some threshold conditions, that is, in their presence and with their support, financial globalization underpins growth and stability of the capital importing economy and in their absence it cannot. Third, it delves into the oft-cited allegation of financial globalization being a source of macroeconomic volatility and eventually financial crises. Fourth, as the evidence that emerged regarding ability of financial globalization to underpin growth was unambiguous. Policy mandarins' options are examined. Findings – The paper finds that from a theoretical perspective, it is easy to state that integration of financial markets an potentially faster growth. Whether it happens in reality is a different matter. Originality/value – The paper explores a new theme. While there are many relevant themes in financial globalization, the author has not seen any article on this theme and this paper may well be the first.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

    Volume (Year): 2 (2010)
    Issue (Month): 4 (December)
    Pages: 307-325

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    Handle: RePEc:eme:jfeppp:v:2:y:2010:i:4:p:307-325

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    Related research

    Keywords: Economic integration; Finance and accounting; Globalization; Macroeconomics;

    References

    References listed on IDEAS
    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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    1. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
    2. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Department of Economics, Working Paper Series qt7g18546z, Department of Economics, UC Santa Cruz.
    3. Hali J. Edison & Michael W. Klein & Luca Ricci & Torsten Sloek, 2002. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," NBER Working Papers 9100, National Bureau of Economic Research, Inc.
    4. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," NBER Working Papers 14691, National Bureau of Economic Research, Inc.
    5. M. Ayhan Kose & Eswar S. Prasad & Ashley D. Taylor, 2009. "Thresholds in the Process of International Financial Integration," NBER Working Papers 14916, National Bureau of Economic Research, Inc.
    6. Alfaro, Laura & Hammel, Eliza, 2007. "Capital flows and capital goods," Journal of International Economics, Elsevier, vol. 72(1), pages 128-150, May.
    7. Levine, Ross & Zervos, Sara, 1996. "Capital control liberalization and stock market development," Policy Research Working Paper Series 1622, The World Bank.
    8. Andrew Berg & Eduardo Borensztein & Catherine A. Pattillo, 2004. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Working Papers 04/52, International Monetary Fund.
    9. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
    10. Chari, Anusha & Henry, Peter B., 2007. "Firm-Specific Information and the Efficiency of Investment," Research Papers 1975, Stanford University, Graduate School of Business.
    11. Reuven Glick & Xueyan Guo & Michael Hutchison, 2006. "Currency Crises, Capital-Account Liberalization, and Selection Bias," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 698-714, November.
    12. Gourinchas, Pierre-Olivier & Jeanne, Olivier, 2007. "Capital Flows to Developing Countries: The Allocation Puzzle," CEPR Discussion Papers 6561, C.E.P.R. Discussion Papers.
    13. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers id:2043, eSocialSciences.
    14. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    15. Dennis P. Quinn & A. Maria Toyoda, 2008. "Does Capital Account Liberalization Lead to�Growth?," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1403-1449, May.
    16. Buch, Claudia M. & Doepke, Joerg & Pierdzioch, Christian, 2005. "Financial openness and business cycle volatility," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 744-765, September.
    17. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15.
    18. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 63-111, April.
    19. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
    20. Noy, Ilan & Vu, Tam B., 2007. "Capital account liberalization and foreign direct investment," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 175-194, August.
    21. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
    22. Mark M. Spiegel, 2008. "Financial globalization and monetary policy discipline," Working Paper Series 2008-10, Federal Reserve Bank of San Francisco.
    23. Prasad, Eswar, 2009. "India's Approach to Capital Account Liberalization," IZA Discussion Papers 3927, Institute for the Study of Labor (IZA).
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