Financial Globalization, Growth, and Volatility in Developing Countries

Eswar S. Prasad, Kenneth Rogoff, Shang-Jin Wei and M. Ayhan Kose

in Globalization and Poverty

Published by University of Chicago Press

Published in print April 2007 | ISBN: 9780226317946
Published online February 2013 | e-ISBN: 9780226318004 | DOI:
Financial Globalization, Growth, and Volatility in Developing Countries

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This chapter states that both developed and developing countries have become increasingly open to capital flows, measured using either policy instruments such as capital controls or ex post capital flows. Economic growth has been the most reliable source of poverty reduction. An increase in macroeconomic volatility tends to decrease the well-being of poor households. The data shows that countries that are in the early stages of financial integration have been exposed to significant risks in terms of higher volatility of both output and consumption. The composition of capital inflows and the maturity structure of external debt appear to be linked with higher vulnerability to the risks of financial globalization. The data generally support the importance of employing various complementary policies to increase the benefits of globalization for the poor.

Keywords: capital flows; economic growth; poverty; macroeconomic volatility; poor households; financial globalization; developing countries

Chapter.  23903 words.  Illustrated.

Subjects: Economic Development and Growth

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