Wednesday, June 20, 2007

A New Look at Financial Globalisation

Four heavy weights combine efforts in tackling the issue of financial globalization. The site where this commentary is posted is a new one called Vox, where a bunch of European economists contribute. HT to David Warsh for the pointer.

Some new insights from the piece:

The notion that financial globalisation influences growth mainly through indirect channels has powerful implications for an empirical analysis of its benefits. Building institutions, enhancing market discipline, and deepening the financial sector take time, as does the realisation of growth benefits from such channels. This may explain why, over relatively short periods, it seems much easier to detect the costs but not the benefits of financial globalisation. More fundamentally, even at long horizons, it may be difficult to detect the productivity-enhancing benefits of financial globalisation in empirical work if one includes structural, institutional, and macroeconomic policy variables in cross-country regressions that attempt to explain growth. After all, it is through these very channels that financial integration generates growth benefits.

Bottom line:

There is, however, unlikely to be a uniform approach to opening the capital account that will work well for all countries.

Read the whole thing here.

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