Advanced Search
MyIDEAS: Login to save this paper or follow this series

Effects of Financial Globalization on Developing Countries

Contents:

Author Info

  • M. Ayhan Kose
  • Kenneth Rogoff
  • Eswar Prasad
  • Shang-Jin Wei

Abstract

This study provides a candid, systematic, and critical review of recent evidence on this complex subject. Based on a review of the literature and some new empirical evidence, it finds that (1) in spite of an apparently strong theoretical presumption, it is difficult to detect a strong and robust causal relationship between financial integration and economic growth; (2) contrary to theoretical predictions, financial integration appears to be associated with increases in consumption volatility (both in absolute terms and relative to income volatility) in many developing countries; and (3) there appear to be threshold effects in both of these relationships, which may be related to absorptive capacity. Some recent evidence suggests that sound macroeconomic frameworks and, in particular, good governance are both quantitatively and qualitatively important in affecting developing countries’ experiences with financial globalization.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16428
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 220.

as in new window
Length: 64
Date of creation: 03 Sep 2003
Date of revision:
Handle: RePEc:imf:imfocp:220

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Developing countries; capital flows; financial integration; globalization; capital inflows; financial globalization; capital account liberalization; international financial; capital markets; international financial integration; international capital flows; international capital; private capital flows; stock market; private capital; capital controls; financial markets; capital mobility; fdi; global capital flows; capital outflows; international finance; international capital markets; capital market; foreign capital; cost of capital; foreign direct investment; direct investment; trade integration; global capital; access to international capital; private capital inflows; composition of capital inflows; capital account restrictions; volatility of capital flows; access to international capital markets; indexed bonds; capital accounts; international financial markets; volatility of capital inflows; global development finance; foreign capital flows; capital market liberalization; access to international financial markets; risk aversion; border capital flows; foreign assets; official flows; hedge funds; host country; global financial flows; capital inflow; speculative attacks; global financial markets; benefits of globalization; global financial integration; international financial contagion; international trade; capital stock; international financial statistics; capital-poor countries; capital account opening; international capital flow; capital account transactions; international integration; capital movements; foreign bank; liberalization of capital; capital flow; domestic capital; capital account crises; equity funds; capital asset pricing; host countries; foreign banks; international investors; stock market capitalization; capital asset pricing model; foreign investors; portfolio investment; foreign-owned firms; inward foreign direct investment; foreign investment; equity investment; external capital; domestic capital markets; international financial flows; world capital markets; capital crunch; global integration; capital asset; capital flow volatility; bond ratings; trade patterns; trade shocks; adverse external shocks; international financial architecture; international finance corporation; index bonds; capital flow reversals; global finance; global market; international financial institutions; capital market integration; volatile capital; equity risk premium; commodity trade; capital-rich countries; brady bonds; portfolio capital inflows; stock exchange; financial intermediation; measures of volatility; embracing globalization; cross-border financial flows; capital ratio; trade liberalization; openness to capital flows; equity prices; indexation; security markets; bond yields; capital accumulation; international financial regulation; short-term capital; net capital; trade barriers; equity returns; liberalization of capital accounts;

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.:
as in new window
  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  2. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
  3. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  4. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  5. James R. Hines, Jr., 1995. "Forbidden Payment: Foreign Bribery and American Business After 1977," NBER Working Papers 5266, National Bureau of Economic Research, Inc.
  6. Paolo Pesenti & Eric van Wincoop, 1996. "Do Nontraded Goods Explain the Home Bias Puzzle?," NBER Working Papers 5784, National Bureau of Economic Research, Inc.
  7. Harris Dellas & Martin K. Hess, 2000. "Financial Development and the Sensitivity of Stock Markets to External Influences," Working Papers 00.06, Swiss National Bank, Study Center Gerzensee.
  8. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper 7580, University Library of Munich, Germany.
  9. Tamim Bayoumi & Manmohan S. Kumar & Giorgio Fazio & Ronald MacDonald, 2003. "Fatal Attraction," IMF Working Papers 03/80, International Monetary Fund.
  10. John M. Griffin & Federico Nardari & Rene M. Stulz, 2002. "Daily Cross-Border Equity Flows: Pushed or Pulled?," NBER Working Papers 9000, National Bureau of Economic Research, Inc.
  11. Robert J. Shiller & Stefano G. Athanasoulis, 1997. "World Income Components: Measuring and Exploiting International Risk Sharing Opportunities," Cowles Foundation Discussion Papers 1097, Cowles Foundation for Research in Economics, Yale University.
  12. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
  13. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
  14. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
  15. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  16. Tesar, Linda L., 1993. "International risk-sharing and non-traded goods," Journal of International Economics, Elsevier, vol. 35(1-2), pages 69-89, August.
  17. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  18. Carmen M. Reinhart & Vincent Raymond Reinhart, 2002. "What Hurts Emerging Markets Most? G3 Exchange Rate or Interest Rate Volatility?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 133-170 National Bureau of Economic Research, Inc.
  19. Reinhart, Carmen & Kaminsky, Graciela, 2008. "The center and the periphery: The globalization of financial turmoil," MPRA Paper 14100, University Library of Munich, Germany.
  20. Choe, Hyuk & Kho, Bong-Chan & Stulz, Rene M., 1999. "Do foreign investors destabilize stock markets? The Korean experience in 1997," Journal of Financial Economics, Elsevier, vol. 54(2), pages 227-264, October.
  21. Paolo Mauro & Yishay Yafeh & Nathan Sussman, 2001. "Emerging Market Spreads: Then Versus Now," OFRC Working Papers Series 2001fe03, Oxford Financial Research Centre.
  22. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The “Overborrowing Syndrome”," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
  23. Kose, M. Ayhan & Riezman, Raymond, 2001. "Trade shocks and macroeconomic fluctuations in Africa," Journal of Development Economics, Elsevier, vol. 65(1), pages 55-80, June.
  24. Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc.
  25. Frederic S. Mishkin, 2000. "Lessons from the Asian Crisis," NBER Working Papers 7102, National Bureau of Economic Research, Inc.
  26. Ruffin, Roy J., 1974. "Comparative advantage under uncertainty," Journal of International Economics, Elsevier, vol. 4(3), pages 261-273, August.
  27. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  28. K. H. O'Rourke, 2001. "Globalization and Inequality: Historical Trends," Trinity Economics Papers 20019, Trinity College Dublin, Department of Economics.
  29. Joshua Aizenman, 2002. "Volatility, employment and the patterns of FDI in emerging markets," NBER Working Papers 9397, National Bureau of Economic Research, Inc.
  30. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  31. Reinhart, Carmen & Calvo, Guillermo, 1999. "Capital Flow Reversals,the Exchange Rate Debate,and Dollarization," MPRA Paper 8951, University Library of Munich, Germany.
  32. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188 National Bureau of Economic Research, Inc.
  33. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, vol. 68(1), pages 5-22, 03.
  34. Wincoop, Eric van, 1994. "Welfare gains from international risksharing," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 175-200, October.
  35. Reuven Glick & Kenneth Rogoff, 1992. "Global versus country-specific productivity shocks and the current account," Working Papers in Applied Economic Theory 92-06, Federal Reserve Bank of San Francisco.
  36. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
  37. Smarzynska, Beata K. & Shang-Jin Wei, 2000. "Corruption and the composition of foreign direct investment - firm-level evidence," Policy Research Working Paper Series 2360, The World Bank.
  38. Mark Carlson & Leonardo Hernandez, 2002. "Determinants and repercussions of the composition of capital inflows," International Finance Discussion Papers 717, Board of Governors of the Federal Reserve System (U.S.).
  39. Reinhart, Carmen, 2002. "Default, currency crises, and sovereign credit ratings," MPRA Paper 13917, University Library of Munich, Germany.
  40. Leonardo Bartolini & Allan Drazen, 1996. "Capital Account Liberalization as a Signal," NBER Working Papers 5725, National Bureau of Economic Research, Inc.
  41. Abdelhak Senhadji, 2000. "Sources of Economic Growth: An Extensive Growth Accounting Exercise," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 6.
  42. L.R. de Mello Jr., 1996. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Studies in Economics 9615, Department of Economics, University of Kent.
  43. van Wincoop, Eric, 1999. "How big are potential welfare gains from international risksharing?," Journal of International Economics, Elsevier, vol. 47(1), pages 109-135, February.
  44. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
  45. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  46. Kristin Forbes, 2000. "The Asian Flu and Russian Virus: Firm-level Evidence on How Crises are Transmitted Internationally," NBER Working Papers 7807, National Bureau of Economic Research, Inc.
  47. William Blankenau & M. Ayhan Kose & Kei-Mu Yi, 1999. "Can world real interest rates explain business cycles in a small open economy?," Staff Reports 94, Federal Reserve Bank of New York.
  48. Shang-Jin Wei & Gaston Gelos, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund.
  49. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  50. Jeannine N. Bailliu, 2000. "Private Capital Flows, Financial Development, and Economic Growth in Developing Countries," Working Papers 00-16, Bank of Canada.
  51. Kalpana Kochhar & Prakash Loungani & Mark R. Stone, 1998. "The East Asian Crisis," IMF Working Papers 98/128, International Monetary Fund.
  52. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  53. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  54. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
  55. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
  56. Shang-Jin Wei, 2000. "Natural openness and good government," Policy Research Working Paper Series 2411, The World Bank.
  57. Karen K. Lewis, 1996. "Consumption, Stock Returns, and the Gains from International Risk-Sharing," NBER Working Papers 5410, National Bureau of Economic Research, Inc.
  58. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  59. Barry Eichengreen & Michael D. Bordo, 2002. "Crises Now and Then: What Lessons from the Last Era of Financial Globalization," NBER Working Papers 8716, National Bureau of Economic Research, Inc.
  60. Beata K. Smarzynska & Shang-Jin Wei, 2000. "Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence," NBER Working Papers 7969, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfocp:220. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.