Financial Globalization and Trade Openness in China and India: Impacts and Policies of Mitigating Adverse Effects

One of the most intensely debated topics in recent day world economic scenario is benefits and costs financial integration and globalization across the globe. Some economists argue that increased openness to capital flows has, by and large, proven essential for countries aiming to upgrade from lower to middle income status, while significantly enhancing stability among industrialized countries. While the counter opinion suggests that it has been widely disastrous as increasing capital account liberalization and unfettered capital flows is a serious impediment to global financial stability. Legal restrictions on cross-border capital flows (capital controls) are the most commonly used measures of the degree of financial openness, as revealed from the earlier empirical studies. The objective of the present study is to examine the nature and extent of financial globalization in context of the global crisis in case of two Asian giants India and China. The basic objective is to establish both short and long run relationship between growth in GDP and five macroeconomic variables- trade (as percentage of GDP), real effective exchange rate, FDI net inflows (as percentage of GDP), external debt (as percentage of GNI) and net financial flows (as a ratio to GDP) in selected Asian countries (China and India). It focuses on related policy measures adopted to curb the possible adverse effects of financial and trade liberalization. It is supported by secondary time series data analysis for the period 1990 to 2014.