Financial Globalization: A Reappraisal

By Ayhan Kose, Eswar S. Prasad, Kenneth S. Rogoff, Shang-jin Wei. Social Science Research Network, 2009

1,686 citations recorded by the source corpus.

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. There is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, but the macroeconomic evidence remains inconclusive. At the same time, some studies argue that financial globalization enhances macroeconomic stability in developing countries, but others argue the opposite. This paper attempts to provide a unified conceptual framework for organizing this vast and growing literature, particularly emphasizing recent approaches to measuring the catalytic and indirect benefits to financial globalization. Indeed, it argues that the indirect effects of financial globalization on financial sector development, institutions, governance, and macroeconomic stability are likely to be far more important than any direct impact via capital accumulation or portfolio diversification. This perspective explains the failure of research based on cross-country growth regressions to find the expected positive effects of financial globalization and points to newer approaches that are potentially more useful and convincing.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/d23522aee2b7332470db54a4cd1f54d4b85df39a

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Citations in the corpus

Foreign Capital and Economic Growth (2007, positive): “We find, consistent with Kose et al. (2006), that there is no relationship, in a broad sample of countries, between GDP growth and the levels of financial openness as measured by stock or flow measures, or between GDP growth and changes in these measures.”
For a Few Dollars More: Reserves and Growth in Times of Crises (2015, methodology): “Our benchmark specification is described below: (10)For de jure measures see Chinn and Ito (2006), Kose et al. (2009), etc.”
Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time (2008, neutral): “In each diamond chart, the origin is normalized so as to represent zero monetary 12 See Chinn and Ito (2008), Edison and Warnock (2001), Edwards (2001), Edison et al. (2002), and Kose et al. (2006) for discussions and comparisons of various measures on capital restrictions.”
The value of control in emerging markets (2010, background): “In the late 1980s and early 1990s, many emerging markets enacted reforms to liberalize international capital flows including foreign direct investment allowing foreign corporate control (Henry, 2006; Kose, Prasad, Wei and Rogoff, 2006).”
Financial Regulation, Financial Globalization and the Synchronization of Economic Activity (2009, background): “Kose et al. (2008); Bekaert, Harvey, Lundblad and Siegel (2011)) has explored the e↵ect of various institutional and financial development indicators (such as creditor’s rights, property rights institutions, private credit, etc.”
Does financial globalization promote risk sharing (2009, background): “In particular, private capital flows from industrialized economies to developing economies have increased dramatically since the mid-1980s, with most of these flows going to emerging market economies (see Kose et al., 2006a,b).”
The new IMF approach to capital account management and its blind spots: lessons from Brazil and South Korea (2014, background): “Key IMF publications (Rogoff et al. 2004; Kose et al. 2006; IMF 2008) acknowledged the potential risks and costs in terms of financial instability and overall macroeconomic volatility but still gave capital account liberalization a prominent role for its ‘collateral effects’: with open capital…”
Financial development dynamic thresholds of financial globalization: Evidence from Africa (2012, background): “Kose et al. (2006) have surveyed an extensive literature and proposed an alternative framework for analyzing the macroeconomic implications of financial globalization in order to pull together existing strands and evidence.”