Reaping the Benefits of Financial Globalization

Last Updated: August 05, 2013

Prepared by the Research Department*
Approved by Simon Johnson
June 2007

This is a discussion paper prepared by IMF staff. It is not a policy paper of the International Monetary Fund, and any positions taken should not be attributed to the Executive Board or Management of the IMF. This paper should not be reported as representing the views of the IMF.

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 Contents   Page

Executive Summary

3

I. Introduction

4

II. Some Facts on Financial Globalization

8

III. Determinants of Financial Globalization-A Cross-Country Perspective

17

IV. Risk-Sharing Benefits of Financial Globalization-Theory and Practice

20

V. How Does Financial Globalization Affect Stability and Growth?

23
 A. Volatility and the Frequency of Crises24
 B. Economic Growth28

VI. Conclusion

35

Appendices:

I. Capital Control Indices

38

II. Case Studies on Financial Account Liberalization

39

Appendix Tables:

1. Country Lists

41

2. Evidence from Selected Case Studies, 1979-2004

42

References

46

*This paper was prepared under the direction of Jonathan D. Ostry by a team led by Paolo Mauro and comprising Giovanni Dell'Ariccia, Julian di Giovanni, André Faria, Ayhan Kose, Martin Schindler, and Marco Terrones.