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Financial globalization in emerging economies:Much ado about nothing?

Eduardo Levy-Yeyati and Tomas Williams ()
Authors registered in the RePEc Author Service: Eduardo Levy Yeyati ()

Business School Working Papers from Universidad Torcuato Di Tella

Abstract: Financial globalization (FG), defined as global linkages through cross-border financial flows, has become increasingly relevant for emerging markets (EM) as they integrate financially to the rest of the world. In this paper, we argue that, because of the way it is often measured, it has also led to the misperception that FG in EM has been growing in recent years. We characterize the evolution of FG in EM using alternative measures, and find that, in the 2000s, FG have grown only marginally and international portfolio diversification has been very limited, and declining over time. Next, we revisit the empirical literature on the implications of FG for local market deepening, international risk diversification, financial contagion, and financial dollarization, and we find them to be rather limited. Whereas FG has indeed fostered domestic market deepening in good times, it has yielded neither the dividends of consumption smoothing (in line with the limited portfolio diversification) nor the costs of amplifying global financial shocks. In turn, financial de-dollarization has largely reflected the undoing of financial offshoring and the valuation effects of real appreciation.

Pages: 47 pages
Date: 2011
New Economics Papers: this item is included in nep-ifn and nep-opm
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Journal Article: Financial Globalization in Emerging Economies: Much Ado About Nothing? (2014) Downloads
Working Paper: Financial globalization in emerging economies: much ado about nothing ? (2011) Downloads
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