Finance for Growth: Policy Choices in a Volatile World

By G. Caprio, Patrick Honohan. 2001

248 citations recorded by the source corpus.

The overall impact of financial globalization on the domestic financial sector is profound. Liberalization of capital flows has effectively made domestic financial repression obsolete. The consequences have not been uniformly favorable. Following liberalization, domestic interest rates in developing countries have moved to a premium over industrial country rates, and can surge at times of currency speculation. Heightened interest rate and exchange rate volatility pose practical risk management difficulties for financial intermediaries and reinforce the need for appropriate infrastructures and incentives for risk containment, as well as for good macropolicies. On the other hand, the cost of equity capital has been reduced by allowing foreign investor access to local equity markets and allowing local firms to list abroad. Increased international flows through the equity markets have not been the major contributor to increased international sources of volatility. In addition to opening access to foreign-sourced financial services, more and more countries have been permitting foreign-owned banks and other financial firms to operate locally. Although this can represent a threat to domestic owners of financial firms, the drawback is outweighed by improved service quality. On all three fronts--debt, equity, and services--the costs and risks as well as the benefits of increased financial globalization. knowledges

Subfields: Accounting, Finance

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Citations in the corpus

Ownership, Investment Climate and Firm Performance: Evidence from Chinese Firms (2006, unknown): “Indeed, a great deal of research demonstrates the importance of well-developed financial markets for economic growth (see Caprio and Honohan, 2001 (for an extensive summary); Cull and Xu, 2005).”
What Drives Capital Flows? The Case of Cross-Border M&A Activity and Financial Deepening (2002, background): “The role of financial development has taken a prominent role in recent research in several different areas of the literature, such as economic growth, financial stability and international financial integration — see Caprio and Honohan (2001) for an excellent recent survey of this literature.”
The fiscal cost implications of an accommodating approach to banking crises (2003, background): “7 The standard Basel approach to bank regulation limits fiscal exposure by insisting on a minimum value of ziðtÞ conditioned on the degree of risk, and monitors compliance periodically (Caprio and Honohan, 2001).”