Globalization of world financial markets - Essay Example

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Globalization of world financial markets

Research finding proving the detrimental effect οf liberalization on the financial system. The Wyplosz research paper says that the evidence based on studies οf the experience with liberalization in a sample οf 27 developing and developed economies seems to be converging to the view that liberalization contributes to both banking and currency crisis.A study by Eichengreen, Andrew Rose and Wyplosz (1995) found that the presence οf capital controls reduces the possibility οf a currency crisis. This result has been confirmed in a 1999 study by Marco Rossi (IMF working paper WP/99/66) for a sample that includes developing countriesAccording to Wyplosz study, liberalization οf financial markets may be desirable in the long term, but it is risky in the short to medium term, and developing countries should approach this as a delicate step calling for cautious policy reactions, according to a research study for the Group οf 24 on International Monetary Affairs, the developing country grouping at the IMF and the World Bank.In theory the liberalization οf capital accounts and financial markets, promoted and pushed by the International Monetary Fund and the international financial institutions (IFIs) is different from the push at the World Trade Organization for liberalization οf trade in financial services.However, whether it be through capital account liberalization or via the liberalization οf trade in financial services, the effect on developing countries could be the same. ...Show more

Summary

In the paper “Globalization of world financial markets” the author analyzes benefits and detrimental consequences οf financial liberalizations. The main issue οf the debate is that there are significant positive effects οf international capital surges into developing economies.

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