Find the best financial services for you at: SMARTFINANCESOLUTIONS.NET - Please reader summarize the topic... i don't understand topic? - Financial globalization—the phenomenon of rising cross-border financial flows—is often blamed for the string of damaging economic crises that rocked a number of emerging markets in the late 1980s in Latin America and in the 1990s in Mexico and a handful of Asian countries. The market turmoil and resulting bankruptcies prompted a rash of finger-pointing by those who suggested that developing countries had dismantled capital controls too hastily—leaving themselves vulnerable to the harsh dictates of rapid capital movements and market herd effects. Some were openly critical of international institutions they saw as promoting capital account liberalization without stressing the necessity of building up the strong institutions needed to steer markets through bad times.
In contrast to the growing consensus among academic economists that trade liberalization is, by and large, beneficial for both industrial and developing economies, debate rages among academics and practitioners about the costs and benefits of financial globalization. Some economists (for example, Dani Rodrik, Jagdish Bhagwati, and Joseph Stiglitz) view unfettered capital flows as disruptive to global financial stability, leading to calls for capital controls and other curbs on international asset trade. Others (including Stanley Fischer and Lawrence Summers) argue that increased openness to capital flows has, in general, proved essential for countries seeking to rise from lower- to middle-income status and that it has strengthened stability among industrial countries. This debate clearly has considerable relevance for economic policy, especially given that major economies like China and India have recently taken steps to open up their capital accounts.
To get beyond the polemics, we put together a framework for analyzing the vast and growing body of studies about the costs and benefits of financial globalization. Our framework offers a fresh perspective on the macroeconomic effects of global financial flows, in terms of both growth and volatility. We systematically sift through various pieces of evidence on whether developing countries can benefit from financial globalization and whether financial globalization, in itself, leads to economic crises. Our findings suggest that financial globalization appears to be neither a magic bullet to spur growth, as some proponents would claim, nor an unmanageable risk, as others have sought to portray it. -
