Rethinking Financial Globalization

Abstract

This chapter introduces the concept of financial globalization and examines the factors driving financial globalization in emerging and developing market economies. The role of financial globalization in driving the development and strengthening of the financial sector, sustainable economic growth, and the nature of innovations are explored. On a broader scale, there is a need to understand the developments in global financial innovation and their implications for developing and emerging markets. The chapter explores the challenges, risks and benefits of financial globalization to emerging and developing markets and how they will shape future behavior and interactions by economic agents in these markets. Financial globalization can lead to different outcomes that include but not limited to domestic capital flight and potential effects on net capital flows, investment, and growth; capital inflows and higher investment and growth; or volatile capital flows and unstable domestic financial markets. The chapter discusses the measurement issues of financial openness. These all need to be explored in this context and consider the rise in innovations in the financial sector.