Financial Globalization and Economic Policies

80 Pages Posted: 24 Apr 2009  

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)

M. Ayhan Kose

Development Prospects Group at the World Bank

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

Multiple version iconThere are 3 versions of this paper

Date Written: April 21, 2009

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: development, developing countries, global economics, global economic crisis

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

Eswar S. Prasad (Contact Author)

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

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HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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Brookings Institution ( email )

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NBER ( email )

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IZA Institute of Labor Economics

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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M. Ayhan Kose

Development Prospects Group at the World Bank ( email )

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Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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International Monetary Fund (IMF)

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Tsinghua University - School of Economics & Management

Beijing, 100084
China

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