Financial Globalization and Economic Policies

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

No 4037, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We review the large literature on various economic policies that could help developing economies effectively manage the process of financial globalization. Our central findings indicate that policies promoting financial sector development, institutional quality and trade openness appear to help developing countries derive the benefits of globalization. Similarly, sound macroeconomic policies are an important prerequisite for ensuring that financial integration is beneficial. However, our analysis also suggests that the relationship between financial integration and economic policies is a complex one and that there are unavoidable tensions inherent in evaluating the risks and benefits associated with financial globalization. In light of these tensions, structural and macroeconomic policies often need to be tailored to take into account country specific circumstances to improve the risk-benefit tradeoffs of financial integration. Ultimately, it is essential to see financial integration not just as an isolated policy goal but as part of a broader package of reforms and supportive macroeconomic policies.

Keywords: financial globalization; capital account liberalization; capital flows; emerging markets (search for similar items in EconPapers)
JEL-codes: F02 F21 F36 F4 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2009-02
New Economics Papers: this item is included in nep-fdg and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published - published in: Dani Rodrik and Mark Rosenzweig (eds.), Handbook of Development Economics, Vol. 5, The Netherlands: North-Holland, 2010, 4283-4362.

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Chapter: Financial Globalization and Economic Policies (2010)
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