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The Evidence and Impact of Financial Globalization

Book Description

The sharp realities of financial globalization become clear during crises, when winners and losers emerge. Crises usher in short- and long-term changes to the status quo, and everyone agrees that learning from crises is a top priority.  The Evidence and Impact of Financial Globalization devotes separate articles to specific crises, the conditions that cause them, and the longstanding arrangements devised to address them. While other books and journal articles treat these subjects in isolation, this volume presents a wide-ranging, consistent, yet varied specificity. Substantial, authoritative, and useful, these articles provide material unavailable elsewhere.




    • Substantial articles by top scholars sets this volume apart from other information sources
    • Rapidly developing subjects will interest readers well into the future
    • Reader demand and lack of competitors underline the high value of these reference works

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Volume 3
  6. Section Editors
  7. Preface
  8. Contributors
  9. Chapter 1. Financial Globalization and Crises: Overview
    1. Introduction
    2. Evidence on Financial Globalization
    3. Forces Behind Globalization
    4. Effects of Financial Globalization
    5. Monetary and Exchange Rate Policy under Financial Globalization
    6. Crises
    7. Final Words
    8. Acknowledgment
    9. References
  10. I: Evidence on Financial Globalization
    1. Chapter 2. Measurements of Capital and Financial Current Account Openness
      1. Measuring Financial Integration
      2. Coding
      3. Data Properties
      4. Uses of Measures
      5. Conclusions
      6. Acknowledgments
      7. References
    2. Chapter 3. Measurement and Impact of Equity Market Liberalization
      1. Introduction
      2. Equity Market Liberalization
      3. Effects of Stock Market Liberalization
      4. Conclusion
      5. Acknowledgments
      6. References
      7. Further Reading
    3. Chapter 4. Bilateral Financial Links
      1. Introduction
      2. Bilateral Data on External Assets and Liabilities
      3. What Explains Bilateral External Financial Linkages?
      4. Stylized Facts
      5. Cross-Border Financial Links and International Transmission of Shocks
      6. Conclusions
      7. See also
      8. Glossary
      9. Supplementary Materials
      10. Further Reading
      11. Relevant Websites
    4. Chapter 5. Global Imbalances
      1. The Contested Landscape of Global Imbalances
      2. Global Imbalances Defined
      3. Spendthrift America and the Saving–Investment Approach
      4. A US Productivity Surge and the Intertemporal Approach
      5. East Asian Mercantilism and Bretton Woods II Versus Self-Protection
      6. A Global Saving Glut?
      7. Imbalances and the Financial Crisis
      8. See also
      9. Acknowledgments
      10. Glossary
      11. References
    5. Chapter 6. Aid Flows
      1. Introduction
      2. Situating Aid Flows Within Financial Globalization
      3. The Particularities of Aid Flows
      4. Aid Effectiveness and the NAA
      5. Interaction of Aid Flows with the Larger Global Financial Architecture
      6. Appendix
      7. See also
      8. References
  11. II: Forces Behind Globalization
    1. Chapter 7. Composition of International Capital Flows: A Survey
      1. What the Chapter Is About
      2. Introduction
      3. Home-Court Information Advantage
      4. Debt Flows
      5. Equity Flows and Liquidity Shocks
      6. Moral Hazard in Debt Contracts Under Limited Enforcement
      7. Role of Bonds in the Presence of Home Bias in Goods and Equities
      8. Conclusion
      9. Acknowledgment
      10. Glossary
      11. References
    2. Chapter 8. Migrant Remittances and Development
      1. Introduction
      2. Remittances Reduce Poverty
      3. Remittances Improve Health and Education Outcomes of Recipient Households
      4. Remittances can Provide Funds for Small Business Investments and Entrepreneurial Activities
      5. Remittances Tend to Remain Stable and are Often Countercyclical to Crises and Natural Disasters
      6. Remittances can have Some Downsides
      7. Remittances can have a Positive Impact on Economic Growth and Development in the Presence of Supportive Institutions
      8. Remittances can Improve Access to Capital Markets
      9. Cost of Sending Remittances has Declined Steadily, but Remains High in Some Corridors
      10. Post Offices, Savings Cooperatives, and Mobile Money Transfers can Play an Important Role in Reaching the Poorest
      11. Remittances Data Need to be Improved
      12. The International Remittances Agenda
      13. References
    3. Chapter 9. International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey
      1. Introduction
      2. Portfolio Choice, Fund Managers’ Incentives, and Consequences for Capital Flows
      3. Transparency, Informational Asymmetries, Asset Allocation, and Capital Flow Volatility
      4. Conclusions
      5. Acknowledgments
      6. Glossary
      7. References
    4. Chapter 10. Capital Raisings
      1. Introduction
      2. Developed World: Patterns and Effects of Cross-Border Capital Raisings
      3. Emerging Markets
      4. Capital Raisings During the 2007–09 Global Financial Crisis
      5. Conclusion
      6. See also
      7. Glossary
      8. References
    5. Chapter 11. International Cross-listings
      1. Introduction
      2. Some New (and Old) Wisdom on International Cross-listings
      3. The Current State of the World Market for International Cross-listings
      4. Price Discovery, Multi-market Trading, and Arbitrage
      5. The Dynamics of Multi-market Trading
      6. Concluding Remarks
      7. Acknowledgments
      8. References
    6. Chapter 12. Disclosure of Ownership and Public Companies
      1. Introduction
      2. The Enron and Parmalat Examples
      3. Disclosure of Beneficial Ownership
      4. Related Party Transactions
      5. Disclosure of Beneficial Ownership of Corporate Vehicles
      6. Conclusion
      7. References
    7. Chapter 13. Role of Trade Finance
      1. Introduction
      2. What is Trade Finance?
      3. Risks Inherent in International Trade
      4. Existing Evidence on Trade Finance Patterns Around the World
      5. New Evidence on Trade Finance Patterns Around the World
      6. Theories of Trade Credit and Trade Finance
      7. Relationship Between Bank Credit and Trade Credit
      8. Trade Credit Versus Bank Credit during the Financial Crisis
      9. Trade Finance Behavior during the Most Recent Global Financial Crisis
      10. Role for Policy Interventions to Support Trade Finance During the Crises
      11. Conclusion
      12. Glossary
      13. References
    8. Chapter 14. Foreign Bank Participation in Developing Countries
      1. Introduction
      2. Foreign Bank Participation in Developing Countries: Trends and Regional Patterns
      3. The Drivers of Foreign Bank Entry
      4. The Consequences of Foreign Bank Entry
      5. Conclusions
      6. Acknowledgments
      7. Glossary
      8. References
    9. Chapter 15. Opportunistic Foreign Currency Debt Issuance
      1. Introduction and Overview
      2. Related Literature
      3. Long-Term IRP
      4. Opportunistic FC Debt Issuance
      5. Conclusion
      6. See also
      7. Glossary
      8. References
    10. Chapter 16. International Government Debt
      1. Introduction
      2. Trends
      3. The Theory of International Government Debt
      4. Evidence on International Borrowing and Default
      5. Debt Structure and Debt Crises
      6. Conclusions
      7. See also
      8. Acknowledgment
      9. Glossary
      10. References
    11. Chapter 17. Carry Trade
      1. Introduction
      2. Designing Carry Trade Strategies
      3. A Trading Laboratory for the Carry Trade
      4. The Trader’s Decision Problem
      5. Adjusting for Returns: KS*, AUC*, and Gain–Loss Ratio
      6. Are Carry Trade Returns Compensation for Risk?
      7. Conclusion
      8. Glossary
      9. Further Reading
  12. III: Effects of Financial Globalization
    1. Chapter 18. Capital Market Integration
      1. The Empirics of Financial Globalization and Growth
      2. Statistical Tests for Crisis Impacts of Openness
      3. Studies of Historical Crisis Incidence and Costs
      4. Calibrating Ranges for Costs of Openness-induced Crises
      5. Evidence from the Global Crisis of 2007–09
      6. Conclusion
      7. See also
      8. Glossary
      9. References
    2. Chapter 19. Collateral Benefits of Financial Globalization
      1. Introduction
      2. What Are the Theoretical Arguments for Collateral Benefits?
      3. What Does the Empirical Evidence Say?
      4. Does Financial Integration Enhance Productivity Growth?
      5. Conclusion
      6. Acknowledgments
      7. References
    3. Chapter 20. Foreign Direct Investment and Growth
      1. Introduction
      2. Overview of the Recent Empirical Literature
      3. Complementarities
      4. Channels, Mechanisms, and Linkages
      5. Concluding Comments
      6. See also
      7. Glossary
      8. References
    4. Chapter 21. International Technology Transfer and Foreign Direct Investment
      1. Introduction
      2. Why should we Expect FDI to be a Source of Knowledge Transfer Across International Borders?
      3. Evidence on Knowledge Transfer to Foreign Affiliates
      4. Knowledge Externalities
      5. Conclusions and Policy Implications
      6. Glossary
      7. References
    5. Chapter 22. Role of Multinational Corporations in Financial Globalization
      1. Introduction
      2. What Are the Determinants of FDI?
      3. Are There Any Growth Effects of FDI?
      4. Foreign Investment, Volatility, and Crises
      5. Conclusion
      6. References
    6. Chapter 23. India’s Reintegration into the World Economy in the 1990s
      1. From Autarky to Reintegration
      2. Empirical Facts About Reintegration
      3. Foreign Portfolio Investment in the Equity Market
      4. The Role of FDI
      5. Foreign Borrowing
      6. Effectiveness of Capital Controls and the Exchange Rate Regime
      7. Domestic Finance and International Finance
      8. Policy Questions About Capital Controls and Monetary Policy
      9. Glossary
      10. Further Reading
      11. Relevant Websites
    7. Chapter 24. Reforms of China’s Banking System
      1. Challenges and Opportunities for China’s Growing Economy and Developing Financial System
      2. The Dominant Role of Banks in the Financial Sector
      3. Further Reading
    8. Chapter 25. Policy Issues of China’s Financial Globalization
      1. China’s Capital Markets Grow in Both Importance and Scope
      2. Monetary and Foreign Exchange Policy
      3. Future Developments in China
      4. See also
      5. Glossary
      6. Further Reading
    9. Chapter 26. Financial Integration in Europe
      1. Financial Integration and Financial Development
      2. How Integrated are European Financial Markets?
      3. Prospects for Security Market Integration
      4. Prospects for Credit Market Integration
      5. Concluding Remarks
      6. See also
      7. Glossary
      8. References
  13. IV: Monetary and Exchange Rate Policy Under Financial Globalization
    1. Chapter 27. The Impossible Trinity (aka The Policy Trilemma)
      1. The Trilemma and Mundell–Fleming’s Framework
      2. The Trilemma Choices of Countries – Trends and Trade-offs
      3. Testing the Trilemma
      4. Beyond the Trilemma Triangle: International Reserves and the Impossible Trinity
      5. The Trilemma and the Future Financial Architecture
      6. See also
      7. Glossary
      8. References
    2. Chapter 28. Financial Globalization and Monetary Policy
      1. Introduction
      2. Globalization and Long-Term Interest Rates
      3. Exchange Rate Regimes and Short-Term Interest Rates
      4. The Financial Crisis, Liquidity, and the Credit Channel
      5. Conclusion
      6. Acknowledgment
      7. See also
      8. Glossary
      9. References
    3. Chapter 29. Interest Rate Parity
      1. Introduction and Overview
      2. Origins and Theory of IRP
      3. Limits to Arbitrage and Factors Associated with Parity Deviations
      4. Empirical Evidence on IRP from the Last 50 years
      5. Empirical Evidence on IRP During the Global Financial Crisis
      6. Conclusion and Cautionary Notes on Parity Deviations
      7. Appendix
      8. References
    4. Chapter 30. Exchange Rate Regimes
      1. Introduction
      2. Exchange Rate Regimes
      3. Why do we Care about ERR?
      4. Exchange Rate Policies in the Post-Bretton Woods Era
      5. Taking Stock
      6. References
    5. Chapter 31. Currency Unions
      1. Introduction
      2. The Benefits
      3. The Costs
      4. Concluding Remarks
      5. Acknowledgment
      6. Glossary
      7. References
    6. Chapter 32. Financial Dollarization
      1. Introduction
      2. Background
      3. Determinants
      4. Empirical Evidence
      5. Costs and Risks
      6. The Policy Agenda
      7. Conclusion
      8. Acknowledgment
      9. See also
      10. Appendix
      11. Glossary
      12. References
  14. V: Crises
    1. Chapter 33. Models of Currency Crises
      1. Introduction
      2. Causes of Currency Crises
      3. Association with Other Crises
      4. Incidence of Currency Crises
      5. Predicting Currency Crises
      6. Effects of Currency Crises
      7. See also
      8. Glossary
      9. References
      10. Relevant Websites
    2. Chapter 34. Predictive Indicators of Financial Crises
      1. Survey of Early Warning Models
      2. Early Warning Models by Investment Banks
      3. IMF Work on Early Warning Systems
      4. Conclusion
      5. See also
      6. References
    3. Chapter 35. A Perspective on Predicting Currency Crises
      1. Introduction
      2. Literature Survey
      3. A Model of Currency Crises
      4. Data Generation
      5. Estimating Crisis Probabilities
      6. Accuracy of the Estimated Probabilities
      7. Conclusion
      8. Appendix: Data Used
      9. References
    4. Chapter 36. Empirical Literature on Financial Crises: Fundamentals vs. Panic
      1. Introduction
      2. Empirical Evidence on the Role of Fundamentals
      3. What do we Learn from the Evidence about the Role of Panic?
      4. How can we Test for Panic?
      5. Conclusion
      6. See also
      7. Acknowledgments
      8. Glossary
      9. References
    5. Chapter 37. Sudden Stops in Capital Flows
      1. Introduction
      2. Empirical Definition of a Sudden Stop and Evidence on the Costs of Sudden Stops
      3. Costs of Sudden Stops
      4. Determinants of Sudden Stops
      5. Ex-ante Policies and Policy Responses to Sudden Stops
      6. Conclusion
      7. See also
      8. Glossary
      9. References
    6. Chapter 38. Definitions and Types of Financial Contagion
      1. Introduction
      2. Definitions of Contagion
      3. The Channels for Shock Transmission
      4. The Empirical Literature on Contagion
      5. Recent Examples of Contagion
      6. See also
      7. Further Reading
    7. Chapter 39. Cross-Border Banking: Regulation, Supervision, and Crisis Resolution
      1. Introduction
      2. Significance of Cross-Border Banking
      3. Importance of Incentive-Compatible Supervisory and Resolution Structures
      4. Illiquid and Insolvent Banks
      5. Prudential Supervision
      6. Conclusion
      7. Glossary
      8. Further Reading
    8. Chapter 40. Market-Based Approach to Financial Architecture
      1. Introduction
      2. Postwar Background
      3. Toward Financial Globalization 1971–80s
      4. Financial Globalization and ‘Governance Light’ 1990–2007
      5. Back to the Future of Instability and Crisis
      6. See also
      7. References
    9. Chapter 41. Housing Is the Business Cycle
      1. Introduction to the Revision
      2. Introduction
      3. The 3–3 Rule of US Real GDP
      4. Temporal Orderings of Components of GDP
      5. Multivariate Confirmation: It is a Consumer Cycle, not a Business Cycle
      6. Hormones and Housing: It has been a Volume Cycle, not a Price Cycle
      7. New Homes Nationwide have a Volume Cycle, not a Price Cycle, too
      8. This Time was Different
      9. The Phases of the Housing Financial Cycle: Hope, Hype, and Havoc
      10. The Conflicts between Housing and Inflation Targeting
      11. By the Way
      12. Conclusion
      13. Appendices
      14. References
    10. Chapter 42. US Stock Market Crisis of 1987
      1. Introduction
      2. Background
      3. Timeline of the Crash
      4. Factors That Contributed to the Severity of the Crash
      5. Response of the Federal Reserve
      6. Conclusion
      7. See also
      8. Glossary
      9. Further Reading
    11. Chapter 43. Mexican Financial Crisis of 1994–1995
      1. Origins of the Crisis
      2. The Consequences of Financial Liberalization
      3. The System under Stress in 1994
      4. Consequences of the 1994 Crisis
      5. What did Mexico Gain in the Long Term?
      6. Glossary
      7. References
      8. Further Reading
    12. Chapter 44. East-Asian Crisis of 1997
      1. Introduction
      2. Origins of the Crisis
      3. Dimensions of Vulnerability and Their Causes
      4. Onset of the Crisis and the Role of Contagion
      5. Why Was the Crisis So Protracted?
      6. Conclusions
      7. References
    13. Chapter 45. Financial Globalization and the Russian Crisis of 1998
      1. Introduction
      2. Russia’s 3-year Road to the 1998 Crisis
      3. Financial Globalization and Russia 1998
      4. Lessons and Insights from Russia 1998
      5. Concluding Remarks
      6. See also
      7. Acknowledgment
      8. Glossary
      9. References
    14. Chapter 46. Argentina’s Default of 2001
      1. Introduction
      2. Economic Performance Under the Convertibility Plan, 1991–98
      3. Economic Difficulties, 1998–2001
      4. Economic and Political Background
      5. The Default and Its Aftermath
      6. See also
      7. Glossary
      8. References
    15. Chapter 47. Assessment of Solutions to US Financial Crisis of 2008–09
      1. Introduction
      2. Measures Introduced between September 2008 and Mid-2009
      3. Cross-Country Snapshot as of June 2009
      4. Effect of Government Rescue Measures on Banks
      5. What Happened After June 2009: A Brief Update
      6. Glossary
      7. Further Reading
      8. Relevant Websites
    16. Chapter 48. A Cross-Country Perspective on the Causes of the Global Financial Crisis
      1. Introduction
      2. Causes of the Crisis
      3. The Evolution of the Crisis
      4. Conclusions: Crisis Resolution Going Forward and the Path to Economic Recovery
      5. See also
      6. References
    17. Chapter 49. Lessons and Policy Implications from the Global Financial Crisis
      1. Introduction
      2. Lessons for Macroeconomic Policy
      3. Lessons for Redesigning Prudential Regulation and Supervision
      4. Lessons for Reform of the International Financial Architecture
      5. Conclusion
      6. References
  15. Index