NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Limits of Financial Globalization

Rene M. Stulz

NBER Working Paper No. 11070
Issued in January 2005
NBER Program(s):   AP   CF

Despite the dramatic reduction in explicit barriers to international investment activity over the last 60 years, the impact of financial globalization has been remarkably limited. I argue that country attributes are still critical to financial decision-making because of what I call the twin agency problems. These twin agency problems arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these twin agency problems are significant, diffuse ownership is inefficient and corporate insiders must co-invest with other investors, retaining substantial equity. The resulting ownership concentration limits economic growth, financial development, and the ability of a country to take advantage of financial globalization. The twin agency problems help explain why the impact of financial globalization has been limited and why financial globalization can lead to capital flight and financial crises. The impact of financial globalization will remain limited as long as these agency problems are significant.

download in pdf format
   (423 K)

email paper

This paper is available as PDF (423 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11070

Published:

Users who downloaded this paper also downloaded these:
Mishkin w11891 Is Financial Globalization Beneficial?
Kose, Prasad, Rogoff, and Wei w12484 Financial Globalization: A Reappraisal
Prasad, Rogoff, Wei, and Kose w10942 Financial Globalization, Growth and Volatility in Developing Countries
Stulz w11912 Financial Globalization, Corporate Governance, and Eastern Europe
Mendoza and Quadrini w15432 Financial Globalization, Financial Crises and Contagion
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us