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Rethinking the effects of financial globalization

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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 inflows 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, 2010. "Rethinking the effects of financial globalization," Economics Working Papers 1128, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2015.
  • Handle: RePEc:upf:upfgen:1128
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    Cited by:

    1. Mukherjee, Rahul, 2015. "Institutions, Corporate Governance and Capital Flows," Journal of International Economics, Elsevier, vol. 96(2), pages 338-359.
    2. Zsofia Barany & Nicolas Coeurdacier & Stéphane Guibaud, 2015. "Fertility, Longevity and International Capital Flows," Sciences Po publications info:hdl:2441/5402sfihji9, Sciences Po.
    3. Gente, Karine & León-Ledesma, Miguel A. & Nourry, Carine, 2015. "External constraints and endogenous growth: Why didn't some countries benefit from capital flows?," Journal of International Money and Finance, Elsevier, vol. 56(C), pages 223-249.
    4. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    5. Fernando A. Broner & Alberto Martin & Jaume Ventura, 2008. "Enforcement Problems and Secondary Markets," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 683-694, 04-05.
    6. Dong He & Lillian Cheung & Wenlang Zhang & Tommy Wu, 2012. "How would Capital Account Liberalization Affect China's Capital Flows and the Renminbi Real Exchange Rates?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(6), pages 29-54, November.
    7. repec:eee:moneco:v:91:y:2017:i:c:p:39-51 is not listed on IDEAS
    8. Bini Smaghi, Lorenzo, 2007. "Global imbalances and monetary policy," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 711-727.
    9. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, vol. 69(2), pages 819-866, April.
    10. Brutti, Filippo, 2008. "Legal enforcement, public supply of liquidity and sovereign risk," MPRA Paper 13949, University Library of Munich, Germany.
    11. Panousi, Vasia, 2009. "Financial Integration and Capital Accumulation," MPRA Paper 24238, University Library of Munich, Germany.
    12. Broner, Fernando & Erce, Aitor & Martin, Alberto & Ventura, Jaume, 2014. "Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 114-142.
    13. Jae wook Jung & Kyunghun Kim, 2018. "Financial Market Integration and Income Inequality," Working Papers id:12916, eSocialSciences.
    14. Philipp Engler & Alexander Wulff, 2014. "Opposition to capital market opening," Applied Economics Letters, Taylor & Francis Journals, vol. 21(6), pages 425-428, April.
    15. Ester Faia & Eleni Iliopulos, 2010. "Financial Globalization, Financial Frictions and Optimal Monetary Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00497486, HAL.
    16. Mariam Camarero & Jesús Peiró-Palomino & Cecilio Tamarit, 2017. "External imbalances and growth," Working Papers 2017/02, Economics Department, Universitat Jaume I, Castellón (Spain).
    17. Ağca, Şenay & Celasun, Oya, 2012. "Sovereign debt and corporate borrowing costs in emerging markets," Journal of International Economics, Elsevier, vol. 88(1), pages 198-208.
    18. Guido Sandleris, 2010. "Sovereign Defaults, Domestic Credit Market Institutions and Credit to the Private Sector," Business School Working Papers 2010-01, Universidad Torcuato Di Tella.
    19. Christian E. Weller & Ghazal Zulfiqar, 2013. "Financial Market Diversity and Macroeconomic Stability," Working Papers wp332, Political Economy Research Institute, University of Massachusetts at Amherst.
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    21. George-Marios Angeletos & Vasia Panousi, 2011. "Financial Integration, Entrepreneurial Risk and Global Imbalances," NBER Working Papers 16761, National Bureau of Economic Research, Inc.
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    23. repec:eee:ecmode:v:69:y:2018:i:c:p:181-192 is not listed on IDEAS
    24. Brutti, Filippo, 2011. "Sovereign defaults and liquidity crises," Journal of International Economics, Elsevier, vol. 84(1), pages 65-72, May.
    25. Raouf Boucekkine & Giorgio Fabbri & Patrick Pintus, 2012. "Short-Run Pain, Long-Run Gain: The Conditional Welfare Gains from International Financial Integration The Conditional Welfare Gains from International Financial Integration," AMSE Working Papers 1202, Aix-Marseille School of Economics, Marseille, France, revised 27 Jun 2016.

    More about this item

    Keywords

    financial globalization; 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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