## Financial Globalization: A Reappraisal

_IMF Working Papers, August 1, 2006_

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**Canonical URL:** [Financial Globalization: A Reappraisal](https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-globalization-a-reappraisal-19435)

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## Bibliographic details
- Authors: Ayhan Kose, Eswar S Prasad, Kenneth Rogoff, Shang-Jin Wei
- Published: August 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864496.001

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### Summary and purpose
- The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels and with a variety of apparently conflicting results.
- The paper attempts to provide a unified conceptual framework for organizing this vast and growing literature.
- The framework is used to provide a synthetic perspective on the macroeconomic effects of financial globalization, in terms of both growth and volatility.
- Overall conclusion: the recent empirical literature lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances; there is little systematic evidence to support widely cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

### Major findings (empirical synthesis)
- There is still little robust evidence of the growth benefits of broad capital account liberalization.
- A number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth.
- Microeconomic (firm- or industry-level) evidence shows some benefits of financial integration and the distortionary effects of capital controls.
- Macroeconomic evidence on benefits and costs remains inconclusive.
- The literature contains disparate channels and apparently conflicting results, necessitating a unified conceptual framework for interpretation.

### Conceptual and methodological contributions
- Provides a unified conceptual framework to organize empirical findings across microeconomic and macroeconomic studies.
- Uses the framework to synthesize evidence on both growth effects and volatility implications of financial globalization.

### Policy-relevant implications and nuances
- Developing countries can benefit from financial globalization, but benefits are qualified and context-dependent.
- Claims that financial globalization by itself leads to deeper and more costly developing country growth crises lack systematic empirical support.
- Micro-level distortions from capital controls are documented, suggesting trade-offs policymakers should consider when designing capital account policies.
- Equity market liberalizations may have different growth implications than broad capital account liberalizations; policy design should distinguish across types of financial integration.

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## Content in this bundle

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-globalization-a-reappraisal-19435_