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Financial Globalization: A Reappraisal

Author

Listed:
  • Mr. Ayhan Kose
  • Mr. Eswar S Prasad
  • Mr. 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.

Suggested Citation

  • Mr. Ayhan Kose & Mr. Eswar S Prasad & Mr. Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," IMF Working Papers 2006/189, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2006/189
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    More about this item

    Keywords

    WP; equity market liberalization; exchange rate; economic growth; monetary policy; open economy; short-term debt;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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