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Financial globalization: gain and pain for developing countries

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  • Sergio L. Schmukler

Abstract

Economies around the world are becoming increasingly interconnected by the unprecedented breadth and depth of financial globalization. Developed countries tend to be most actively involved in cross-country capital movement, but in recent years developing countries have begun to participate in the process. ; This article focuses on the integration of developing countries into the international financial system. It examines recent developments and the principal agents of financial globalization as well as globalization’s effect on the domestic financial sector. Financial liberalization tends to develop the financial system, enhancing financing opportunities, reducing the cost of capital, and increasing investment and liquidity. But global financial interconnectedness also carries with it some risks, especially in the short run, because it tends to intensify a country’s sensitivity to foreign shocks. ; For policymakers, the challenges center on maximizing the advantages that globalization presents while minimizing the risks. Governments participating in financial globalization tend to have fewer policy options and to become more reliant on international financial policies.> As the line between foreign and domestic capital blurs, a country’s successful participation in financial globalization will require strong economic fundamentals and a properly regulated and supervised financial system. A primary challenge of globalization, the author concludes, is to integrate all sectors and countries because nonparticipants are at a disadvantage.

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2004)
Issue (Month): Q 2 ()
Pages: 39 - 66

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Handle: RePEc:fip:fedaer:y:2004:i:q2:p:39-66:n:v.89no.2

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Keywords: Economic stabilization ; Globalization;

References

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Citations

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Cited by:
  1. Simplice A. ASONGU, 2012. "Globalization, Financial Crisis And Contagion: Time - Dynamic Evidence From Financial Markets Of Developing Countries," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 0(2), pages 131-139, January.
  2. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-72, Summer.
  3. Asongu Simplice, 2011. "Political Crises and Risk of Financial Contagion in Developing Countries: Evidence from Africa," Working Papers 11/003, African Governance and Development Institute..
  4. Simplice A. Asongu, 2012. "The 2011 Japanese earthquake, tsunami and nuclear crisis: Evidence of contagion from international financial markets," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(4), pages 340-353, December.
  5. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, Elsevier.
  6. Tulbure, Narcis & Catarama, Delia, 2009. "Institutional and Socio-Cultural Factors Explaining the Development of Mutual Funds. A Cross-Country Analysis," MPRA Paper 20341, University Library of Munich, Germany.
  7. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, October.
  8. Zhang, Bing & Li, Xiao-Ming, 2014. "Has there been any change in the comovement between the Chinese and US stock markets?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 525-536.
  9. Gupta, R. & Donleavy, G.D., 2009. "Benefits of diversifying investments into emerging markets with time-varying correlations: An Australian perspective," Journal of Multinational Financial Management, Elsevier, vol. 19(2), pages 160-177, April.
  10. Guidi, Francesco & Gupta, Rakesh, 2010. "Cointegration and conditional correlations among German and Eastern Europe equity markets," MPRA Paper 21732, University Library of Munich, Germany.
  11. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc.
  12. Kerstin Gerling, 2008. "The Real Consequences of Financial Market Integration when Countries Are Heterogeneous," Working Papers 141, Oesterreichische Nationalbank (Austrian Central Bank).

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