Financial Globalization, Growth and Volatility in Developing Countries

Shang-Jin Wei, Eswar Prasad, Kenneth Rogoff and Ayhan Kose

No 4772, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Growth; Globalization; Macroeconomic volatility; International Financial Linkages (search for similar items in EconPapers)
JEL-codes: F15 F36 F41 F43 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-afr, nep-cwa and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

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Related works:
Chapter: Financial Globalization, Growth and Volatility in Developing Countries (2007)
Working Paper: Financial Globalization, Growth and Volatility in Developing Countries (2004)
Working Paper: Financial Globalization, Growth and Volatility In Developing Countries
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