Financial Globalization and Economic Policies

84 Pages Posted: 2 Mar 2009

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Shang-Jin Wei

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Abstract

We review the large literature on various economic policies that could help developing economies effectively manage the process of financial globalization. Our central findings indicate that policies promoting financial sector development, institutional quality and trade openness appear to help developing countries derive the benefits of globalization. Similarly, sound macroeconomic policies are an important prerequisite for ensuring that financial integration is beneficial. However, our analysis also suggests that the relationship between financial integration and economic policies is a complex one and that there are unavoidable tensions inherent in evaluating the risks and benefits associated with financial globalization. In light of these tensions, structural and macroeconomic policies often need to be tailored to take into account country specific circumstances to improve the risk-benefit tradeoffs of financial integration. Ultimately, it is essential to see financial integration not just as an isolated policy goal but as part of a broader package of reforms and supportive macroeconomic policies.

Keywords: financial globalization, emerging markets, capital flows, capital account liberalization

JEL Classification: F02, F21, F36, F4

Suggested Citation

Kose, M. Ayhan and Prasad, Eswar S. and Rogoff, Kenneth S. and Wei, Shang-Jin, Financial Globalization and Economic Policies. IZA Discussion Paper No. 4037, Available at SSRN: https://ssrn.com/abstract=1351200 or http://dx.doi.org/10.2139/ssrn.1351200

M. Ayhan Kose (Contact Author)

World Bank ( email )

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Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management ( email )

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Cornell University - Department of Economics ( email )

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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Shang-Jin Wei

Columbia University - Columbia Business School, Finance ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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