DP4772 Financial Globalization, Growth and Volatility in Developing Countries
|Author(s):||Ayhan Kose, Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei|
|Publication Date:||December 2004|
|Keyword(s):||globalization, growth, international financial linkages, macroeconomic volatility|
|JEL(s):||F15, F36, F41, F43|
|Programme Areas:||International Macroeconomics, International Trade and Regional Economics, Institutions and Economic Performance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4772|
This Paper provides a comprehensive assessment of empirical evidence about the impact of financial globalization on growth and volatility in developing countries. The results suggest that it is difficult to establish a robust causal relationship between financial integration and economic growth. Furthermore, there is little evidence that developing countries have been consistently successful in using financial integration to stabilize fluctuations in consumption growth. However, we do find that financial globalization can be beneficial under the right circumstances. Empirically, good institutions and quality of governance are crucial in helping developing countries derive the benefits of globalization. Similarly, macroeconomic stability appears to be an important prerequisite for ensuring that financial globalization is beneficial for developing countries. Finally, countries that employ relatively flexible exchange rate regimes and succeed in maintaining fiscal discipline are more likely to enjoy the potential growth and stabilization benefits of financial globalization.