Financial Globalization in Emerging Economies: Much Ado About Nothing?

47 Pages Posted: 20 Apr 2016

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Tomas Williams

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2011

Abstract

Financial globalization, defined as global linkages through cross-border financial flows, has become increasingly relevant for emerging markets as they integrate financially with the rest of the world. This paper argues that, because of the way it is often measured, it has also led to the misperception that financial globalization in emerging markets has been growing in recent years. The authors characterize the evolution of financial globalization in emerging markets using alternative measures, and find that, in the 2000s, financial globalization has grown only marginally and international portfolio diversification has been limited and declining over time. The paper revisits the empirical literature on the implications of financial globalization for local market deepening, international risk diversification, financial contagion, and financial dollarization, and finds them to be rather limited. Whereas financial globalization has indeed fostered domestic market deepening in good times, it has yielded neither the dividends of consumption smoothing (in line with limited portfolio diversification) nor the costs of amplifying global financial shocks. In turn, financial de-dollarization has largely reflected the undoing of financial offshoring and the valuation effects of real appreciation.

Keywords: Debt Markets, Emerging Markets, Mutual Funds, Economic Theory & Research, Currencies and Exchange Rates

Suggested Citation

Levy-Yeyati, Eduardo Levy and Williams, Tomas, Financial Globalization in Emerging Economies: Much Ado About Nothing? (April 1, 2011). World Bank Policy Research Working Paper No. 5624, Available at SSRN: https://ssrn.com/abstract=1803961

Eduardo Levy Levy-Yeyati (Contact Author)

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Tomas Williams

affiliation not provided to SSRN

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