Financial Globalization and its Impact on Emerging Markets

Financial globalization encompasses integration of international money markets, international capital markets, and capital mobility across countries. For international financial investors (investors in financial securities), financial globalization means the ever increasing speed and freedom of moving funds across national markets. For emerging markets, due to the fact that their financial markets are still relatively primitive, financial globalization entails liberalization of domestic financial markets and relaxation of capital control to allow for financial capital inflows and outflows. Since the 1970s, there have been a few noticeable events in the international financial arena that involved emerging markets: the world debt crisis in the early 1980s, the Mexican peso crisis in late 1994, and more recently, the financial crises in Southeast Asia. Much of the enormous literature on these events has focused on the stability of international financial systems and on risk assessment and management on the part of international investors. Not much attention has been given to the impacts of these events on the emerging markets. This chapter seeks to understand the role of emerging markets in the global financial integration and the impacts of the swirls of capital flows on their financial and economic stability. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.