Kose , M. Lane , Phillip R. Mishkin , Frederic S. Prasad , Eswar , and Raghuram G. Rajan , Raghuram G. Reinhart , Carmen M. Aghion and S. Durlauf Amsterdam, North-Holland.
Schularick , Moritz , and Thomas M. Summers , Lawrence H. Of course, the Asian financial crisis forced the IMF to abandon efforts to amend its Articles of Agreement to promote capital-account liberalization. But in some of its recent bilateral trade agreements, the United States did succeed in getting its trading partners for example, Chile and Singapore to commit irrevocably to it.
We do not evaluate here the impact of financial globalization on financial crises, except to note the recent assessment by Reinhart and Rogoff , p. See Bresser-Pereira and Gala for a similar argument. So, if anything, the weight of at least the macroeconomic evidence has shifted toward a less favorable view of financial globalization.
Gourinchas and Jeanne focus only on developing countries, but PRS distinguish between developed and developing countries. In the neoclassical growth model, capital-account liberalization has long-run effects on the latter, but not the former.
Schularick and Steger find a positive relationship between financial integration and investment rates during the earlier era of globalization — , but no such relationship in the data for — They interpret this as being the result of much larger net capital flows under the classical gold standard. One of the more persuasive papers in this literature is by Rajan and Zingales But this paper establishes an effect on relative growth finance-intensive sectors grow more rapidly than other sectors in countries where there is greater financial depth and not on the average level of growth.
See for example Calvo, Lederman, and Reinhart on the role of U. These results do not seem to be due to changes in relative prices: the pattern of correlation we get is quite similar when we compute the investment effort by taking the ratio of investment to GDP at constant local currency units. Nor can we explain it easily through other channels by which U.
When U. In principle, the fact of being more closed to capital means that interest rate changes in the United States should have little impact on the availability of savings in these countries, leading to a weak or no correlation. One interpretation of the strong negative correlation would then be that it reflects the more traditional demand channel of higher interest rates in the United States reducing the demand for exports and hence leading to lower investment.
The investment demand schedule here is strictly speaking that for tradables because that is key for long-run growth. Johnson, Ostry, and Subramanian show that not only is the average level of overvaluation significantly greater for slow-growing sub-Saharan African countries relative to the sustained growth performers but that consecutive spells of overvaluation are longer in duration and the degree of overvaluation during these spells significantly greater.
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IMF Speeches. Independent Evaluation Office Reports. Selected Decisions. Selected Legal and Institutional Papers Series. Summary Proceedings. IMF Research Bulletin. IMF Research Perspectives. Advanced search Help. Browse Topics Business and Economics. Archived Series. Previous Article Next Article. Why Did Financial Globalization Disappoint? Author: Mr. Dani Rodrik 1 and Mr.
Arvind Subramanian. Publication Date: 01 Jun ISBN: Language: English Keywords: SP ; financial globalization ; country ; investment demand schedule ; economic growth ; flat investment profile ; cost of capital ; investment-constrained economy ; Capital account liberalization ; Real exchange rates ; Capital flows ; Capital inflows ; East Asia. Download PDF Abstract Full Text Related Publications. Abstract The stylized fact that there is no correlation between long-run economic growth and financial globalization has spawned a recent literature that purports to provide newer evidence and arguments in favor of financial globalization.
The New Arguments Figures 1 and 2 present the simple correlation between economic growth and financial globalization measured in de facto terms, that is, as the sum of gross foreign assets and liabilities as a share of GDP.
Figure 1a. A Note: The relationship shown above is conditioned on size measured as the log of population. The sample of countries excludes countries in the Organization for Economic Cooperation and Development and, for presentational reasons, 14 developing countries that have very high levels of financial globalization. Including these countries, and not conditioning on size, does not affect the relationship shown above. Growth rate is from the Penn World Tables, version 6.
Download Figure Download figure as PowerPoint slide. Figure 1b. Change in financial globalization is measured as the difference between the average level of financial globalization for —04 or for the 5 years closest to these dates and the average level of financial globalization for —74 or for the 5 years closest to these dates. The sample of countries excludes countries in the Organization for Economic Cooperation and Development and, for presentational reasons, nine developing countries that have very high changes in the levels of financial globalization.
Figure 2a. The sample of countries excludes countries in the Organization for Economic Cooperation and Development and, for presentational reasons, nine developing countries that have very high levels of financial globalization.
Figure 2b. Change in financial globalization is measured as the difference between the average level of financial globalization for —04 or for the 5 years closest to these dates and the average level of financial globalization for —89 or for the 5 years closest to these dates. Looking in the Wrong Places, Version I Henry argues that the failure of existing studies to detect a positive impact of financial globalization on growth stems from three factors: 5 first, the studies look for permanent growth effects whereas in the basic Solow growth model permanent decreases in the cost of capital and hence increases in the ratio of investment to GDP only have a temporary effect on growth.
Looking in the Wrong Places, Version II KPRW accept the weakness of the macroevidence in favor of financial globalization, but they surmise that this is due to the fact that researchers have been looking in the wrong places. What Do the Microstudies Really Show? Investment-Constrained vs. Savings-Constrained Economies Poor economies are poor because there are many things that are wrong with them. Table 1.
Correlation between U. A Stylized Framework We now sketch a very stylized framework to illustrate more clearly the difference between investment- and savings-constrained economies and to analyze the manner in which each of them responds to openness to capital inflows.
In such a setting, firms will be of two types: Type I : Profitability of investment projects is high relative to current cash flow, leaving firms in need of external finance for the undertaking of incremental investments. Figure 3. Figure 4. Note: Partial relationship between a measure of overvaluation of the real exchange rate and net private flows, comprising portfolio equity, debt, and foreign direct investment, controlling for demographics and a dummy for oil-exporting countries.
Figure 5. A Source: Based on Rodrik Note: Partial relationship between a measure of undervaluation of the real exchange rate and growth rate of per capita GDP controlling for initial income and country and period fixed effects. Data are for developing countries and cover a panel of 5-year averages from —84 through — Figure 6. Concluding Remarks In the wake of the subprime financial crisis, the claims that recent financial engineering has generated large gains are sounding less plausible, and it is becoming clear that domestic finance will come under closer scrutiny.
Crossref Acemoglu , Daron , and James A. Crossref Beck , T. Crossref Calvo , Guillermo A. Crossref Lane , Phillip R. Crossref Mishkin , Frederic S. Same Series. Other IMF Content. Chapter Other Publishers. International Labour Organization World of Work Report Income inequalities in the age of financial globalization Making globalization socially sustainable Globalization and informal jobs in developing countries. Financial globalization: a macroeconomic angle. Purpose - The objective of this paper is to provide a macroeconomic assessment of the impact of global financial integration over the economies that are undergoing financial integration.
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A dozen countries had weak institutions in and yet sustained high rates of growth subsequently.
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