80 Pages Posted: 24 Apr 2009
Date Written: April 21, 2009
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: development, developing countries, global economics, global economic crisis
Suggested Citation: Suggested Citation
Prasad, Eswar S. and Rogoff, Kenneth and Kose, M. Ayhan and Wei, Shang-Jin, Financial Globalization and Economic Policies (April 21, 2009). Brookings Global Economy and Development Working Paper No. 34. Available at SSRN: https://ssrn.com/abstract=1392949 or http://dx.doi.org/10.2139/ssrn.1392949