Reaping the Benefits of Financial Globalization

Financial globalisation has increased dramatically over the past three decades, particularly for advanced economies. While, in theory, financial globalisation should enhance international risk sharing, reduce macroeconomic volatility and foster economic growth, in practice its effects are less clear. Countries gain or lose from financial integration depending on their domestic economic and institutional conditions. The resulst in this paper broadly support an approach envisaging a gradual and orderly sequencing of external financial liberalisation and emphasising the desirablility of complementary reforms in macroeconomic policy framework and the domestic financial system as esential components of a successful liberalisation strategy.