Yeyati, Eduardo LevyWilliams, Tomas2012-03-192012-03-192011-04-01https://hdl.handle.net/10986/3390Financial 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.CC BY 3.0 IGOADVANCED COUNTRIESADVANCED ECONOMIESARBITRAGEASSET HOLDINGSASSET POSITIONSASSET PRICEASSET PRICESASSET TYPEBALANCE OF PAYMENTSBALANCE SHEETSBANK DEPOSITSBANKING SECTORBENCHMARKSBONDBOND FUNDSBUSINESS CYCLECAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL CONTROLSCAPITAL FLIGHTCAPITAL FLOWCAPITAL FLOWSCAPITAL MOBILITYCAPITAL OUTFLOWSCAPITAL REPATRIATIONCAPITAL STOCKCDSCENTRAL BANKCONSUMPTION SMOOTHINGCORPORATE DEBTCREDIT RISKSCREDIT SPREADSCRISIS COUNTRYCROSS-BORDER FLOWSCROSS-BORDER INVESTMENTSCURRENCYCURRENCY MISMATCHESCURRENCY RISKDEBTDEBT FLOWSDEBT HOLDINGSDEBT INSTRUMENTSDEBT RATIOSDEBT SECURITIESDEBTSDEGREE OF RISKDEPOSITDERIVATIVESDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPING ECONOMIESDEVELOPING MARKETSDEVELOPMENT BANKDIVERSIFICATION BENEFITSDIVERSIFIED PORTFOLIODIVIDENDSDOMESTIC ECONOMYDOMESTIC EQUITYDOMESTIC FINANCIAL MARKETSDOMESTIC MARKETDOMESTIC MARKETSECONOMIC DEVELOPMENTECONOMIC PERFORMANCEECONOMIC POLICIESEMERGING ECONOMIESEMERGING MARKETSEQUITIESEQUITY FLOWSEQUITY HOLDINGSEQUITY INDEXESEQUITY INSTRUMENTSEQUITY MARKETEQUITY MARKET CAPITALIZATIONEQUITY MARKETSEQUITY PORTFOLIOEQUITY PORTFOLIOSEQUITY PRICEEQUITY PRICESEQUITY RETURNSEQUITY VALUATIONEXCHANGE RATESEXPOSUREEXTERNAL DEBTFINANCIAL ASSETSFINANCIAL CONTAGIONFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FLOWSFINANCIAL FRAGILITYFINANCIAL INNOVATIONFINANCIAL MARKETFINANCIAL OPENNESSFINANCIAL PORTFOLIOSFINANCIAL RISKFINANCIAL SECTORFINANCIAL SHOCKSFINANCIAL STABILITYFIXED INCOMEFIXED INCOME MARKETSFIXED INCOME SECURITIESFLOWS OF CAPITALFOREIGN ASSETFOREIGN ASSETSFOREIGN CAPITALFOREIGN DEBTFOREIGN EQUITYFOREIGN HOLDINGSFOREIGN INFLOWSFOREIGN INVESTMENTFOREIGN LENDERSFOREIGN PORTFOLIOFOREIGN SHAREGLOBAL DIVERSIFICATIONGLOBAL EQUITYGLOBAL FUNDGLOBAL FUNDSGLOBAL MARKETGLOBAL MUTUAL FUNDSGLOBAL PORTFOLIOGLOBAL RISKGLOBALIZATIONGROWTH RATEGROWTH RATESHEDGE FUNDHEDGE FUNDSHOLDINGHOST COUNTRYINCOME FLOWSINCOME SHOCKSINDEBTED COUNTRIESINFLATIONINSTRUMENTINTERNATIONAL BANKINTERNATIONAL DIVERSIFICATIONINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL INVESTORINTERNATIONAL INVESTORSINTERNATIONAL PORTFOLIOINTERNATIONAL SECURITIESINVESTINGINVESTMENT VEHICLESISSUANCELEVYLIABILITYLIQUID MARKETSLIQUIDITYLIQUIDITY CRUNCHLIQUIDITY RISKSLOCAL DEBTLOCAL DEBT MARKETSLOCAL EQUITY MARKETSLOCAL MARKETLOCAL MARKETSLOCAL STOCK MARKETLOW-INCOME COUNTRIESMACROECONOMIC VOLATILITYMARKET CONDITIONSMARKET DEEPENINGMARKET DEPTHMARKET DEVELOPMENTMARKET DEVELOPMENTSMARKET DISCOUNTSMARKET INVESTMENTMARKET SIZEMARKET VALUEMARKET VALUESMIDDLE-INCOME ECONOMIESMONETARY FUNDMUTUAL FUNDSNET DEBTOPEN ECONOMYOUTPUTPHYSICAL ASSETSPORTFOLIO COMPOSITIONPORTFOLIO DIVERSIFICATIONPORTFOLIO FLOWSPORTFOLIO HOLDINGSPORTFOLIO INVESTORPORTFOLIO RISKPORTFOLIOSPRICE CHANGESPRICE VOLATILITYPRIVATE CREDITPROFESSIONAL INVESTORSREDEMPTIONSRESERVERETURNRETURN DIFFERENTIALSRETURNSRISK AVERSIONRISK DIVERSIFICATIONRISK POOLINGRISK SHARINGSAVINGSSAVINGS CAPACITYSECURITIES MARKETSSECURITIES PORTFOLIOSETTLEMENTSINGLE MARKETSOLVENCYSOVEREIGN DEBTSTOCK DATASTOCK MARKETSTOCK MARKET CAPITALIZATIONSTOCK MARKET DEVELOPMENTSTOCKSSWAPSTAXTERMS OF CREDITTOTAL DEBTTRADE LIBERALIZATIONTRADESTRADINGTRANSACTIONTRANSACTION COSTSTRANSPARENCYTREASURYTURNOVERVALUATIONVALUATION CHANGESVOLATILITIESWorld Bank10.1596/1813-9450-5624