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Rethinking the Effects of Financial Liberalization

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  • Fernando Broner
  • Jaume Ventura

Abstract

During the last few decades, many emerging markets lifted restrictions on cross-border ?financial transactions. In this paper, we present a simple model that can account for the observed effects of ?financial globalization. The model emphasizes the role of imperfect enforcement of domestic debts and the interactions between domestic and foreign debts. Financial globalization can lead to a variety of outcomes: (i) domestic capital ?flight and ambiguous effects on net capital ?flows, investment, and growth; (ii) capital in?flows and higher investment and growth; or (iii) volatile capital ?flows and unstable domestic ?financial markets. The model shows how the effects of ?financial globalization depend on the level of development, productivity, domestic savings, and the quality of institutions.

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  • Fernando Broner & Jaume Ventura, 2015. "Rethinking the Effects of Financial Liberalization," Working Papers 509, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:509
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    More about this item

    Keywords

    Financial liberalization; sovereign risk; enforcement; Capital flows; economic growth;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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