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Financial Globalization

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Author Info

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

Abstract

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels and with a variety of apparently conflicting results. For instance, there is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, while the macroeconomic evidence remains inconclusive. We attempt to provide a unified conceptual framework for organizing this vast and growing literature. This framework allows us to provide a fresh synthetic perspective on the macroeconomic effects of financial globalization, in terms of both growth and volatility. Overall, our critical reading of the recent empirical literature is that it lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances. On the other hand, there is little systematic evidence to support widely cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/189.

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Length: 94
Date of creation: 01 Aug 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/189

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Related research

Keywords: Capital account liberalization; Developing countries; globalization; financial integration; capital flows; financial globalization; capital controls; capital inflows; international financial; financial markets; capital mobility; capital markets; international capital flows; international capital; international financial integration; cost of capital; stock market; global financial markets; capital accounts; foreign assets; exchange rates; trade integration; capital market; capital account transactions; equity inflows; capital movements; capital accumulation; access to international financial markets; global capital markets; foreign capital; global capital; international finance; international trade; international capital markets; private capital flows; stock market capitalization; international financial markets; foreign liabilities; trade liberalization; international financial assets; capital control; capital market liberalization; foreign exchange; composition of capital inflows; capital account restrictions; global capital flows; moral hazard; international investment; private capital; equity investment; capital gains; capital inflow; volatility of inflows; commercial credits; equity capital; flows of capital; capital stock; capital-poor countries; cross-border financial flows; official flows; openness to capital flows; equity investments; stable macroeconomic policies; economic integration; capital outflows; capital transactions; capital structure; foreign capital flows; capital goods; external capital; liberalization of capital; export revenues; equity risk premium; international capital inflows; capital market integration; speculative capital; international financial crises; capital asset pricing; capitalization rates; international financing; trade barriers; international financial institutions; credit market; capital repatriation; domestic capital; credit market imperfections; performance bonds; international financial statistics; stock exchange; financial intermediation; short-term capital; equity prices; international financial regulation; net capital; international integration; capital account opening; foreign portfolio investment; stabilization policies; capital market securities; international capital market; volatility of debt flows; speculative attacks; international finance corporation; debt stock; international financial liberalization; global development finance; commercial bank loans; capital flow; international economic order; international financial flows; trade restrictions; security markets; short term debt; capital asset; global financial stability; global integration; border capital flows;

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  1. repec:rus:hseeco:181565 is not listed on IDEAS
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  3. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
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