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The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries


  • Stijn Claessens

    (World Bank)

  • Geoffrey R D Underhill

    (University of Amsterdam)

  • Xiaoke Zhang

    (University of Nottingham)


The 1990s financial crises triggered many changes to the design of the international financial system, the so-called international financial architecture. While much affected, developing countries have had very little influence on the changes, which the formulation of the new Basle capital accord (B-II) illustrates. The article shows that B-II has largely been formulated to serve the interests of powerful market players, with developing economies being left out. For developing countries, B-II can make domestic financing more costly and raise the costs of and reduce the access to external financing. Importantly, B-II can exacerbate fluctuations in the supply of external financing, an unfortunate outcome, given that developing countries already suffer from volatility.

Suggested Citation

  • Stijn Claessens & Geoffrey R D Underhill & Xiaoke Zhang, 2006. "The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries," WEF Working Papers 0015, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  • Handle: RePEc:wef:wpaper:0015

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    References listed on IDEAS

    1. repec:mes:challe:v:33:y:1990:i:4:p:57-59 is not listed on IDEAS
    2. Powell, Andrew, 2002. "A capital accord for emerging economies?," Policy Research Working Paper Series 2808, The World Bank.
    3. Beatrice Weder & Michael Wedow, 2002. "Will Basel II Affect International Capital Flows to Emerging Markets?," OECD Development Centre Working Papers 199, OECD Publishing.
    4. Underhill,Geoffrey R. D. & Zhang,Xiaoke (ed.), 2003. "International Financial Governance under Stress," Cambridge Books, Cambridge University Press, number 9780521817325, May.
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    Cited by:

    1. Mügge, Daniel, 2010. "Amartya Sen's "The idea of justice" and financial regulation," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 12(1), pages 10-17.
    2. Dewandaru, Ginanjar & Rizvi, Syed Aun R. & Bacha, Obiyathulla I. & Masih, Mansur, 2014. "What factors explain stock market retardation in Islamic Countries," Emerging Markets Review, Elsevier, vol. 19(C), pages 106-127.


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