Obstfeld, Maurice2017-08-282017-08-282008https://hdl.handle.net/10986/28029Despite an abundance of cross-section, panel, and event studies, there is strikingly little convincing documentation of direct positive impacts of financial opening on the economic welfare levels or growth rates of developing countries. The econometric difficulties are similar to those that bedevil the literature on trade openness and growth, though if anything, they are more severe in the context of international finance. There is also little systematic evidence that financial opening raises welfare indirectly by promoting collateral reforms of economic institutions or policies. At the same time, opening the financial account does appear to raise the frequency and severity of economic crises. Nonetheless, developing countries continue to move in the direction of further financial openness. A plausible explanation is that financial development is a concomitant of successful economic growth, and a growing financial sector in an economy open to trade cannot long be insulated from cross?border financial flows. This survey discusses the policy framework in which financial globalization is most likely to prove beneficial for developing countries. The reforms developing countries need to carry out to make their economies safe for international asset trade are the same reforms they need to carry out to curtail the power of entrenched economic interests and liberate the economy's productive potential.en-USCC BY 3.0 IGOAGENCY PROBLEMALLOCATION OF CAPITALASSET POSITIONSASYMMETRIC INFORMATIONBAILOUTBALANCE SHEETBALANCE SHEETSBANK FINANCINGBANK REGULATIONSBANK SUPERVISIONBANKING CRISESBANKING CRISISBANKING SECTORBIDSBORROWING COSTBORROWING COSTSCAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL ACCOUNTSCAPITAL ASSET PRICINGCAPITAL FLOWSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL MARKETCAPITAL MARKET LIBERALIZATIONCAPITAL MARKETSCAPITAL MOBILITYCAPITAL MOVEMENTSCAPITAL OUTFLOWCAPITAL STOCKCAPITAL STOCKSCENTRAL BANKCENTRAL BANK INDEPENDENCECOLLATERALCOMMODITY PRICESCONSUMER DURABLECORPORATE GOVERNANCECORPORATE INSIDERSCOUNTRY RISKCREDIBILITYCREDIT GROWTHCREDIT RISKCRISIS COUNTRIESCURRENCYCURRENCY COMPOSITIONCURRENCY CRISISCURRENCY DEPRECIATIONCURRENCY MISMATCHCURRENCY MISMATCHESCURRENCY RISKCURRENT ACCOUNT DEFICITCURRENT ACCOUNT SURPLUSCURRENT ACCOUNT SURPLUSESDEBTDEBT CRISISDEFAULT PROBABILITIESDEFICITSDEPOSITDERIVATIVESDERIVATIVES MARKETSDEVALUATIONDEVELOPING COUNTRIESDEVELOPING COUNTRYDOMESTIC EQUITYDOMESTIC FINANCIAL MARKETSDURABLE GOODECONOMIC EFFICIENCYECONOMIC RISKSEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMYEMERGING MARKETSENFORCEMENT SYSTEMEQUITY HOLDINGEQUITY INVESTMENTEQUITY MARKETEQUITY MARKET CAPITALIZATIONEQUITY RETURNSEQUITY STAKEEXCHANGE RATEEXCHANGE RATE MOVEMENTSEXOGENOUS RATEEXPORTERSEXPROPRIATIONEXTERNAL BORROWINGEXTERNAL DEBTEXTERNAL DEFICITSFACE VALUEFINANCIAL ASSETSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL DISTRESSFINANCIAL FLOWSFINANCIAL FRAGILITYFINANCIAL INSTABILITYFINANCIAL INSTITUTIONSFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL SECTOR DEVELOPMENTFINANCIAL STABILITYFINANCIAL STRUCTURESFINANCIAL SYSTEMFINANCIAL SYSTEMSFIRM PERFORMANCEFISCAL DEFICITFISCAL DEFICITSFISCAL POLICIESFIXED EXCHANGE RATEFIXED EXCHANGE RATESFLEXIBLE EXCHANGE RATEFLEXIBLE EXCHANGE RATESFLOATING EXCHANGE RATEFLOATING RATESFOREIGN CAPITALFOREIGN CURRENCYFOREIGN INVESTORFOREIGN INVESTORSFREE CAPITALGLOBAL CAPITALGLOBAL CAPITAL MARKETSGLOBAL DEVELOPMENT FINANCEGLOBALIZATIONGOVERNANCE STANDARDSGOVERNMENT BORROWINGGOVERNMENT BORROWING RATESGOVERNMENT DEBTGOVERNMENT FINANCESGOVERNMENT GUARANTEESGOVERNMENT POLICIESHOME EQUITYHUMAN CAPITALINCOME VOLATILITYINDIVIDUAL INVESTORSINFLATIONINFLATIONARY PRESSURESINFORMATIONAL ASYMMETRIESINSTITUTIONAL DEVELOPMENTINSURANCEINTANGIBLEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL DEVELOPMENTINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL PORTFOLIOSINTERNATIONAL TRADEINTERNATIONAL TRANSACTIONSINVESTMENT PROJECTSINVESTMENT RATEJUDICIAL ENFORCEMENTLABOR MARKETLIQUIDITYLOCAL STOCK MARKETMACROECONOMIC POLICYMACROECONOMIC VOLATILITYMALFEASANCEMARKET DISCIPLINEMARKET ECONOMYMARKET PARTICIPANTSMATURITIESMONETARY POLICYMONEYLENDERSMORAL HAZARDMORAL HAZARDSMORTGAGEOPEN ECONOMIESPOLICY RESPONSEPOLITICAL STABILITYPORTFOLIOPRICE CHANGEPRIVATE CAPITALPRIVATE INVESTMENTPROPERTY RIGHTSPUBLIC DEBTPUBLIC FINANCESPURCHASING POWERREAL EXCHANGE RATEREGULATORY FRAMEWORKREGULATORY STRUCTUREREPAYMENTREPAYMENT OF PRINCIPALRESERVERESERVE REQUIREMENTRESERVESRETURNRETURNSRISK SHARINGRULE OF LAWSHARE OF EQUITYSHAREHOLDERSHAREHOLDERSSHORT MATURITIESSHORT MATURITYSHORT-TERM DEBTSTOCK MARKETSTOCK MARKET PRICESTAXTRADE LIBERALIZATIONSTRADINGTRANSPARENCYUNDERDEVELOPED FINANCIAL SECTORWORLD STOCK MARKETWorking PaperWorld Bank10.1596/28029