Effects of Financial Globalization on Developing Countries: Some Empirical Evidence

By Ayhan Kose, Kenneth Rogoff, Eswar S Prasad, Shang-Jin Wei

September 3, 2003

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Ayhan Kose, Kenneth Rogoff, Eswar S Prasad, and Shang-Jin Wei. Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Summary

This study provides a candid, systematic, and critical review of recent evidence on this complex subject. Based on a review of the literature and some new empirical evidence, it finds that (1) in spite of an apparently strong theoretical presumption, it is difficult to detect a strong and robust causal relationship between financial integration and economic growth; (2) contrary to theoretical predictions, financial integration appears to be associated with increases in consumption volatility (both in absolute terms and relative to income volatility) in many developing countries; and (3) there appear to be threshold effects in both of these relationships, which may be related to absorptive capacity. Some recent evidence suggests that sound macroeconomic frameworks and, in particular, good governance are both quantitatively and qualitatively important in affecting developing countries’ experiences with financial globalization.

Subject: Balance of payments, Capital flows, Consumption, Financial integration, Financial markets, Foreign direct investment, Globalization, National accounts

Keywords: Africa, Asia and Pacific, Capital, Capital flows, Consumption, Consumption volatility, Country, East Asia, Economy, FDI flow, FDI recipient country, Financial globalization, Financial integration, Foreign direct investment, Global, LFI economy, MFI economy, OP, Sub-Saharan Africa

Publication Details

Pages:

64
Volume:

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DOI:

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Issue:

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Series:

Occasional Paper No. 2003/007
Stock No:

S220EA
ISBN:

9781589062214
ISSN:

0251-6365

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