Macroeconomic Ramifications of Financial Globalization

This chapter essentially concentrates on the macroeconomics of financial globalization. It examines the role played by macroeconomic policy measures and establishes the leaders and followers of financial globalization. It provides a macroeconomic assessment of the impact of global financial integration over economies that are undergoing financial integration. The principal issues it focuses on are as follows: It begins with examining the evidence of whether financial globalization elevates growth performance of the integrating economy and supports it macroeconomic stability. It takes a nuanced view and divides the impact of financial integration into direct and indirect benefits. Second, it scrutinizes whether there are some threshold conditions, that is, in their presence and with their support financial globalization underpins growth and stability of the capital importing economy and in their absence it cannot. Third, it delves into the oft-cited allegation of financial globalization being a source of macroeconomic volatility and eventually financial crises. Fourth, as the evidence that emerged regarding the ability of financial globalization to underpin growth was unambiguous, it examines the policy mandarins’ options. Lastly, the macro-financial dynamics of global surpluses and deficits has evolved as a problematic issue, which has also been addressed in this chapter.