NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Globalization, Growth and Volatility in Developing Countries

Eswar S. Prasad, Kenneth S. Rogoff, Shang-Jin Wei, M. Ayhan Kose

NBER Working Paper No. 10942
Issued in December 2004
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w10942

Published: Financial Globalization, Growth and Volatility in Developing Countries, Eswar S. Prasad, Kenneth Rogoff, Shang-Jin Wei, M. Ayhan Kose. in Globalization and Poverty, Harrison. 2007

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