Introduction Borrowers and investors in public and private sectors always seek for highly profitable opportunities beyond their home countries. After the Second World War, a tendency to international cooperation empowered. Financial liberalization, technology developments, and financial innovations have been the essential drivers for the financial globalization. This paper begins with the financial liberalization debate and its impact on the international capital flows. In view of the financial globalization, Carry-trades and cross-border listings will be emphasized.
The impacts of financial deregulation on financial globalization After the World War II, most of countries were interested in a new era without previous international challenges. The Bretton woods international system was founded in order to develop international trades based on a fixed exchange rate in isolated financial domestic systems. Bretton woods could not be feasible in all aspects so international finance has experienced lots of changes. It was obvious that separated financial systems could not be continued. International supervisory over the financial markets has been emerged to prevent and manage international capital flows among countries. Researches shows that any intervention from the states may have some benefits in short-term but its costs in the longterm would offset all the benefits and probably made it worse. (Weber and Arner, 2007)
Financial deregulation and liberalization has many interpretations as International Monetary Fund classified on two capital regimes: a “no control” regime and a “controls” regime before1995 which still nearly remained but with a more comprehensive report. Criteria to measure financial deregulation and liberalization might be based on foreigners‟ participation in the domestic listed companies and their permission to transfer their incomes to abroad, credit controls, interest rate regimes, role of the state in the companies‟ ownership especially in financial companies, state loans from banks, limitation to set up new financial intermediaries as banks and insurance companies. It should be noted there is a step-by-step financial liberalization as the country funds act. These funds are allowed to collect from foreigners in order to purchase domestic financial instruments. As a result, foreigners can participate indirectly in the market. Kaminsky and schumkler (2002) introduced the comprehensive criteria to define liberalization in capital account, domestic financial sector, and stock market in three levels of fall, partial, and no liberalization. They concentrated on borrowing abroad mostly freely with maturity less than two years, reserves requirements, current and capital truncations without special exchange rates. Further these criteria, emerging markets has experienced the liberalization of capital accounts, stock markets, and domestic financial sector since late 1980‟s. In the developed markets, stock market has not been so limited but capital account and domestic financial sector relieved from barriers mostly since early 1980‟s. It should be mentioned that the liberalization lead to larger bull markets and less bear markets after the deregulations in developed countries against larger boon and crashes in emerging markets (Kamminshys and Schumkle , 2002 ).
Based on World Bank data base, private capital flows have increased since 1985 (figure1).But there are many dips as in 1994, 1998, and 2009 due to the crisis. Overall, deregulation has had significant impact on the international financial flows all around the
Figure1: Private Capital Flows million $
1,200,000 1,000,000 800,000 600,000 400,000 200,000
0 1985 -200,000
world since 1990 when the liberalization has been considered by the governments. As Lutz says that (1998)1: „The...