Economics
Financial Globalization
Financial globalization refers to the increasing interconnectedness and integration of financial markets and institutions on a global scale. It involves the flow of capital, investments, and financial services across borders, leading to greater international capital mobility and cross-border financial transactions. This phenomenon has been driven by advancements in technology, deregulation, and the liberalization of financial markets.
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10 Key excerpts on "Financial Globalization"
eBook - PDF- Bünyamin Ayhan(Author)
- 2018(Publication Date)
- Peter Lang Group(Publisher)
Lecturer Ayşe Özge Artekin*1 Financial Globalization Introduction In the last thirty years, globalization, regardless of its occurring place in the world, has emerged as the most used concept in all evaluations, especially in the econom- ic, social and political fields. However, despite its extensive use in the literature, there is no common definition of this concept due to its wide domain. Therefore, this study aims to explain more specifically the concept of globalization which has a long historical background and shows its effects more and more with each passing day, and so increasingly gets involved in our lives. This study also seeks to elaborate the phenomenon of Financial Globalization by addressing the economic dimension, benefits and risks of globalization. Globalization as a Phenomenon Since the history of global economic integration dates back five hundred years, despite its intense use in the literature, there is no common definition of the concept of “globalization” (Ellwood, 2003: 13), which describes an old process, but is a new expression. While some authors focus exclusively on the economic dimension of globalization, others refer not only to its economic dimension, but also its political and cultural dimensions. This situation leads to the emergence of different definitions of globalization and uncertainties in its definition, depending on the dimension considered (Benk and Akdemir, 2004: 13). The issue we are addressing is the economic dimension of globalization. Some more specific definitions can be made of this subject. For example; Shangquan describes economic globalization as the interdependence of world trade which has been created as a result of cross-border trade in goods and services, the flow of international capital, and rapid and widespread deployment of technology (Shangquan, 2000: 3).
eBook - PDFGlobalization and the State: Volume II
Trade Agreements, Inequality, the Environment, Financial Globalization, International Law and Vulnerabilities
- C. Peláez(Author)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
Thus, our empirical findings demonstrate that the main predictions of the financial liberalization literature do not receive full empirical support, a result which is consistent with the prevalence of financial market imperfections 86 Globalization and the State: Volume II Their research suggests that financial restraint may be beneficial in the presence of weak institutional quality in the form of inadequate prudential supervision and regulation. Further challenging research is required to obtain a complete picture of the interaction of financial restraint and the effectiveness of financial liberalization. Financial Globalization Financial Globalization can be defined as the process of integration of the finan- cial system of a country with international financial markets and institutions (Schmukler 2004, 39). The integration is usually accompanied with liberalization, or freeing, internal financial markets and the flow of international capital, or cap- ital account of the balance of payments. The liberalization of financial markets consists of the elimination of controls on financial institutions, such as interest rate ceilings on deposits and loans, reserve and liquidity requirements on deposits, restrictions on assets and conditions to allocate loans to certain economic activ- ities. The liberalization of capital flows consists of the elimination of controls on exchange rates and quantitative restrictions on foreign international transac- tions by domestic agents or foreign agents. Cross-border movements of capital significantly increase during Financial Globalization. Globalization is the result of the interaction of four agents – governments, borrowers, investors and financial institutions (Schmukler 2004, 44–6). Governments promote globalization by eliminating restrictions on domestic financial markets and institutions and by allowing free flows of capital. Borrowers and investors can borrow and invest overseas, respectively .
eBook - PDFGovernment Intervention in Globalization
Regulation, Trade and Devaluation Wars
- C. Peláez(Author)
- 2008(Publication Date)
- Palgrave Macmillan(Publisher)
128 Introduction Economists are in general in favor of the benefits resulting from greater global integration of trade. There is no agreement on the benefits of Financial Globalization. The first section considers the arguments in favor of increased efficiency and growth caused by financial markets and institutions. Financial repression, in the form of intervention in financial markets, has been denounced as causing losses of efficiency and opportunities for growth. Financial liberalization consists of eliminating government controls of financial markets. There have been waves of financial liberalization in the past three decades. A separate section considers the advantages and costs of liberalizing foreign access to domestic financial markets. The debate has focused on capital account liberalization, that is, unrestricted flows of capital among nations. The main argument against liberalizing capital flows is the incidence of financial crises with adverse effects on output and employment. The role of finance in growth and efficiency Adam Smith referred to the role of finance in terms of a parable. 1 Output was higher if the process of production was divided into small tasks performed by different workers and machines. Specialization was the driver of economic growth that Smith observed during the industrial revolution. The transition to specialization from a barter economy requires a medium of exchange and a unit of measurement, provided by money. There is no specialization in a subsistence economy in which all 9 Financial Globalization Financial Globalization 129 production occurs within the family unit. Goods are exchanged for each other in barter transactions. The early characterization of eco- nomic development was the movement away from the subsistence to the money economy, which is not far from the parable of Smith. There is higher specialization in the money economy in which goods are exchanged for money.
eBook - PDFFinancial Globalization
Growth, Integration, Innovation and Crisis
- D. Das(Author)
- 2010(Publication Date)
- Palgrave Macmillan(Publisher)
In advanced industrial economies, recent growth in Financial Globalization was primarily stimulated by early waves of liberalization of capital account and financial deregulation. Recent cross-border finan- cial integration in this group of economies was a fortiori driven by the rapid pace of financial innovation (Section 3.5). Sectoral developments like securitization, rise in the activities of hedge funds and increased use of offshore special-purpose vehicles by financial and non-financial cor- porations has also led to rapid growth in cross-border financial holdings among advanced industrial economies. The influence of rapid financial innovation on Financial Globalization in this group of economies has been greater than generally visualized. It has been observed in recent years that financial innovation in one advanced industrial economy raised demand by foreign investors in the other. These investors ratio- nally wished to access and profit from the new asset class that had just come into being. The pattern of merchandise trade is another consequential variable in this context. As stated below, cross-country FDI and portfolio equi- ties flows are driven by the underlying patterns of merchandise trade between the investing and the recipient countries (Section 7.3). It is possible that the level of trade may be a proxy for bilateral informa- tion flows. Other factors that influence cross-country investment flows are the links through common language and common legal systems. In addition, the impact of the recent emergence of a highly successful 90 Financial Globalization group of exporting economies on contemporary Financial Globalization was enormous. This group includes both exporters of manufacturers and services as well as those who export commodities. The four BRIC economies and the East Asian economies come under the first category, while the GCC countries come under the second (Section 7.4).
eBook - ePubFrom Walmart to Al Qaeda
An Interdisciplinary Approach to Globalization
- David Murillo(Author)
- 2017(Publication Date)
- Routledge(Publisher)
4 Financial Globalization If globalization has become a synonym for capitalism to the extent that globalization is converted into a province of the world economy, in recent decades the economy itself must be seen as a province of capital flows and the global financial system. The key concept that accounts for this alteration is that of financialization: the profound transformation of economic structures through the progressive deployment of an increasingly autonomous, globalized and deregulated financial system. We must therefore conduct an in-depth examination of this concept of financialization and its scope. We will also need to understand the economic changes associated with financialization and its impact on social and political structures, and we must do so without losing sight of the current crisis and its relationship with the expansion of the global financial system. 4.1 Macroeconomic imbalances and financial imbalances Economics provides a quite descriptive account of the relationship between the theoretical construct we call the current account deficit and the behaviour of states. Stated simply, the current account balance is just one of the three balances that make up the balance of payments, 1 albeit the main one, alongside the capital account and financial account balances. It represents the sum of the exchange of goods and merchandise, services and current transfers that a given country makes with the rest of the world. When a country has a current account deficit, it needs money from abroad to offset the difference with the savings generated. This is what happened over the period 1999–2007 in many of the countries that are still now struggling to overcome the crisis. 2 For years and years, countries such as the US, Spain, the UK and Italy gave up saving and embarked on the mass consumerism intrinsic to globalization, financing themselves with cheap and seemingly infinite loaned money coming from abroad
- W. Tseng, D. Cowen, W. Tseng, D. Cowen(Authors)
- 2005(Publication Date)
- Palgrave Macmillan(Publisher)
9 Effects of Financial Globalization on Developing Countries: Some Empirical Evidence Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose 1 201 9.1 Overview The recent wave of Financial Globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing coun- tries, a number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, crises that have exacted a serious toll in terms of macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration for developing economies. But much of the debate has been based on only casual and limited empirical evidence. The main purpose of this chapter is to provide an assessment of empirical evidence on the effects of Financial Globalization for developing economies. The chapter will focus on three related questions: (i) does financial global- ization promote economic growth in developing countries? (ii) what is its impact on macroeconomic volatility in these countries? (iii) what are the factors that appear to help harness the benefits of Financial Globalization? The principal conclusions that emerge from the analysis are sobering, but in many ways informative from a policy perspective. It is true that many developing economies with a high degree of financial integration have also experienced higher growth rates. It is also true that, in theory, there are many channels by which financial openness could enhance growth. However, a systematic examination of the evidence suggests that it is diffi- cult to establish a robust causal relationship between the degree of financial integration and output growth performance.
- Fikret ?auševi?, Fikret ?auševi?, Fikret ?auševi?, Fikret Čaušević(Authors)
- 2017(Publication Date)
- Palgrave Macmillan(Publisher)
9 Some of the fastest-growing economies in the world (e.g. China and the countries of South-east Asia) have had high levels of de facto Financial Globalization, in spite of being classified as de jure relatively closed economies. The results of our investigations into the relative economic standing of developed and developing countries and changes in the pattern over time, presented in the next chapter and based on the World Bank database, make clear that, during the first fourteen years of this century, fewer than half of the 20 fastest-growing economies had implemented full de jure financial openness. 10 They argued that any analysis of Financial Globalization’s impact would therefore have to pay proper attention to institutional stability and the 2 Financial Globalization AND ECONOMIC GROWTH – LITERATURE . . . 9 approaches taken to reform. In contrast to the classical framework their approach stresses Financial Globalization’s collateral effects and their importance for how the traditional channels of influence (financial markets and institutions) function. This in turn determines the impact of financial flows, better management, and macroeconomic discipline. How these elements interact affects total factor productivity (TFP) growth and so GDP growth, allowing changes in the public’s consumption and wealth to take place smoothly. In an essay from 2006, Gourinchas and Jeanne 11 deploy a calibrated neoclassical model of economic growth to argue against the standard interpretation of financial openness and its impact on a typical capital- recipient developing country. They found that for a typical non-OECD country, the conventionally measured impact on growth and prosperity of transition from financial autarky (financial repression) to full financial liberalization is no more than 1% of steady domestic consumption growth.
eBook - PDFInstitutions and Market Economies
The Political Economy of Growth and Development
- W. Garside(Author)
- 2007(Publication Date)
- Palgrave Macmillan(Publisher)
264 The Institutionalization of Neoliberalism 11.2.4 Financialization and dollarization in developing countries In developing countries, financialization is occurring with a damaging twist. Over the 1990s they have experienced a strong trend towards 'dollarization', that is to holding wealth in foreign currencies, mainly the US dollar and the Euro. ('Dollarization' does not refer only to dollars.) For example, average foreign currency deposits to total deposits in South America (excluding Mexico) rose from 46 per cent to S6 per cent in just five years, from 1996 to 2001; in Africa, from 28 per cent to 33 per cent; and in the 'transitional' economies, from 37 per cent to 48 per cent (Nicolo et al., 2003). These figures reflect the declining competitiveness of national curren- cies in developing countries relative to the US dollar and the Euro. Why? Average inflation rates are still much higher in developing countries (six per cent) compared to developed countries (two per cent), even though they have fallen substantially. The risks of currency devaluation are significant. Hence private wealth holders try to move out of the national currency into one that will better hold value. 8 The result of currency competition of this kind is a global hierarchy of currencies: those at the top fulfil both domestic and international functions; those in the middle fulfil domestic but not international functions; those at the bottom (the majority) fulfil neither domestic nor international functions. 9 No central bank can ignore the non-acceptance of its currency, which means that the domestic currency is not fulfilling basic (domestic) functions. The costs of non-acceptance (or 'dollarization') include the limited effectiveness of monetary policy, and amplified impacts of currency changes. Central banks supervising uncompetitive currencies (most developing countries) therefore try to keep interest rates high in order to induce people to hold the domestic currency.
eBook - PDF- E. Aksu, J. Camilleri, E. Aksu, J. Camilleri(Authors)
- 2002(Publication Date)
- Palgrave Macmillan(Publisher)
Part II Global Financial Flows 4 The Political Economy of Globalization: the Old and the New Stephen Gill Globalization as a trend and globalization as a political project When most people hear the word ‘globalization’ they think of a set of mega-trends and processes creating a more interlinked and integrated world. Perhaps unintentionally, phrases like ‘the global village’, ‘the information soci- ety’ and ‘one world, ready or not!’ convey the impression that globalization is a massive historical and evolutionary process that is beyond human control. Some theorists see the mega-trends of globalization as unstoppable. It is claimed, there- fore, that governments, societies and social institutions have no alternative but to adapt to these apparently inexorable forces. At its extreme, this view gives rise to what one Canadian journalist, Linda McQuaig, has called ‘the cult of impotence’. 1 What she means is that government leaders have convinced them- selves they are powerless in the face of global financial markets and freewheeling investment or capital flows across borders. This is the ‘myth of powerlessness in the global economy’ and this myth reflects a form of ‘historical determinism’. This is the essence of the ‘end of history’ thesis as it applies to globalization. Thus globalization is inevitable, necessary and irreversible. Governments have lost power to market and technological forces. However, globalization is not just a set of trends, but also a conscious political project. Globalization as a political project refers to a deliberate attempt – which of course can never be fully successful because of different forms of resistance to it from Right and Left – to construct a free-enterprise capitalist market system at the global level. It involves conscious political choices. Perhaps the most obvious way to make this argument is to say: globalization is not new.
eBook - PDFCrisis and Sustainability
The Delusion of Free Markets
- Alessandro Vercelli(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
The process of globalisation has made obsolete Ricardo’s assertions on the mobility of capital taking into account that trade and foreign direct investment motivate a small percentage of global capital flows as compared with rapidly growing financial flows. In addition, the Second Globalisation shifted the balance between financial flows to sup- port the real economy and those to earn speculative gains in favour of the latter. While still in the early 1980s foreign direct investment constituted the 90 % of cross-border capital flows, this percentage has become less than 10 % in consequence of the amazing growth of speculative flows. A crucial feature of traditional free-trade theory is that it ignores financial flows across countries that are so important in the financial globalisation of the last decades. The trouble is that in traditional theory comparative advantages depend on the fact that countries face different costs for pro- ducing goods. Therefore, if prices do not reflect correctly these costs, the market mechanism is bound to produce distortionary results. Summing up, during the First Globalisation, the massive migration of workers played the role of last-resort equaliser. Notwithstanding their significant impact on the global markets, the growth of inequality was only slowed down. During the Second Globalisation, cross-border capi- tal movements were supposed to play the role of last-resort equaliser but the growth of inequality did not relent; on the contrary, inequality that had subsided since World War 1 started to grow again. We may find one reason for growing inequality in the progressive decline of foreign direct investment on the total of capital flows. In addition, the multinational corporations that implemented foreign direct investment in peripheral countries kept much of the profits in the core countries of origin.
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