DP5842 Financial Globalization: A Reappraisal

Author(s): Ayhan Kose , Eswar Prasad , Kenneth Rogoff , Shang-Jin Wei

Publication Date: September 2006

Keyword(s): capital account liberalization , financial integration , growth and volatility , financial crises , developing countries

JEL(s): F02 , F21 , F36 , F4

Programme Areas: International Macroeconomics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP5842.asp.asp

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. 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, both in terms of 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.