Is financial globalization good for developing nations?

Topics: Developing country, Developed country, Cyprus Pages: 8 (2557 words) Published: March 19, 2014



Topic: Is financial globalization good for developing nations?

Submitted to: Dr. Ian Kirkwood


The financial globalization is a complex topic to elaborate. Here, I have made an attempt to discuss the topic ’Is financial globalization good for developing nations?’Many times this question has been discussed and debated but still it remained ambiguous. I believe that although the financial globalization brings few benefits, it brings several risks for the developing nations. Of course it seems that financial globalization has provided a great business platform for the developing nations like India and China and has played a vital role in the development of these nations but in fact financial globalization has made these countries more dependent on the developed nations. At some point financial globalization has benefited the higher income developing nations like India and China but here I would like to raise a question that what about the lower income developing nations. Financial globalization is not beneficial for the lower income developing nations. It is also proved that financial globalization brings more dependency for the developing nations. During the recent economic downturn we have observed that how financial globalization can harm different economies. As we all know that in financial globalization different economies are correlated with each other to achieve their financial objectives and also to be developed in terms of the financial conditions. So in this condition any speculation can harm the other countries’ economy. Although financial globalization has some benefits, it also carries several risks for the developing countries. These risks are observed during global financial crises. The wave of financial globalization that has occurred in the mid-1980s.It can be defined as capital flows among industrial between developed and developing economies. The effects of financial globalization have been experienced by the developing countries. Due to these economic conditions, an intense debate has taken place on the effects of financial globalization on developing nations. Here, I would like to discuss several risks for developing economies associated with financial globalization. When any country is involved in financial globalization, it liberalizes its financial system. It means that it allows the investors of the other nations to invest in the financial activity of that particular nation. The foreign investors are welcomed by the nation to invest in the market. So in the market we can see both kind of investors, domestic investors and foreign investors. At first sight, it seems very positive for both the nations to achieve their financial goals. But this requires disciplined exercise by both foreign and domestic investors. If both the investors do not show disciplined exercise, the economy has to suffer. In this case both the investors are involved so if any adverse condition is occurred in the market it is very difficult to achieve fundamentals because in such condition the foreign investors tend to escape from the situations they only see their benefits. So sometimes this condition may invite economic crisis. If the condition is not so it takes longer period of time to achieve fundamentals in the economy. In the other case when an economy is closed, only domestic investors monitor the economy and reacts during adverse condition to achieve fundamentals. So it takes shorter period of time to achieve fundamentals in compare to open economy.

As we all know that in financial globalization the external factors become more important than internal factors in the county’s financial condition. So this kind of situation is very dangerous for the any country’s economy. In this condition even if the country’s financial condition is very sound financial globalization can lead crisis even in the absence of imperfection in the international...

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2. Bekaert, Geert, Campbell R. Harvey, and Christian Lundblad, 2001a, “Does Financial Liberalization Spur Growth?” NBER Working Paper No. 8245 (Cambridge,Massachusetts: National Bureau of EconomicResearch).
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