IMF Working Papers

Financial Globalization: A Reappraisal

By Ayhan Kose, Eswar S Prasad, Kenneth Rogoff, Shang-Jin Wei

August 1, 2006

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Ayhan Kose, Eswar S Prasad, Kenneth Rogoff, and Shang-Jin Wei. Financial Globalization: A Reappraisal, (USA: International Monetary Fund, 2006) accessed September 18, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Capital account liberalization, Financial integration, Foreign direct investment, Globalization, Stock markets

Keywords: Economic growth, Equity market liberalization, Exchange rate, Monetary policy, Open economy, Short-term debt, WP

Publication Details

  • Pages:

    94

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2006/189

  • Stock No:

    WPIEA2006189

  • ISBN:

    9781451864496

  • ISSN:

    1018-5941