Abstract
The positive and the negative macroeconomic aspects of the financial liberalization for the developing and emerging economies are well described in the present literature. But it is not easy to clearly summarize the final effects of the financial integration on the certain country. For instance the argument about the growth benefits of the capital account liberalization is likely to be inadequate considering the financial crises in the emerging markets at the end of the last century. On the other hand, many authors (especially in the financial literature) report that the equity market liberalizations help to significantly boost the economic growth. There are also some examples on the microeconomic level (firm level or industry level) when the international financial integration brings certain benefits to the integrated enterprises and the capital flows restriction leads to the distortionary effects. In the paper we analyze the macroeconomic effects of the capital flows liberalization.
Highlights
The financial crises of the 1990s have uncovered several problems
The composition of capital inflows has a substantial influence on the growth benefits of financial liberalization for developing countries, the evidence is far from decisive
Studies based on both macroeconomic and microeconomic data find that equity market liberalizations have positive effects on output growth
Summary
Banking systems in many countries collapsed, fast growing economies suddenly faced sharp recessions, and the increasing international capital flows of the mid-1990s declined to even lower levels Another important casualty of these crises has been the support for the liberalization and integration of financial systems. Many economists have argued that globalization has gone too far, leading to erratic capital markets and causing costly crises This has prompted some to suggest a return to the order of financial controls. Stutz (1999) and Mishkin (2001) claim that financial liberalization and integration promotes transparency and accountability, reducing adverse selection and moral hazard while reducing liquidity problems in financial markets They argue, that international capital markets help to discipline economic policymakers, who might be tempted to exploit an otherwise captive domestic capital market. The analysis we present provides a perspective on the macroeconomic effects of financial liberalization
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