Finance for Growth : Policy Choices in a Volatile World
The overall impact of financial globalization on the domestic financial sector is profound. Liberalization of capital flows has effectively made domestic financial repression obsolete. The consequences have not been uniformly favorable. Following l...
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| Format: | Publication |
| Language: | English en_US |
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Washington, DC: World Bank and Oxford University Press
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2001/04/1121242/finance-growth-policy-choices-volatile-world http://hdl.handle.net/10986/13895 |
| Summary: | The overall impact of financial
globalization on the domestic financial sector is profound.
Liberalization of capital flows has effectively made
domestic financial repression obsolete. The consequences
have not been uniformly favorable. Following liberalization,
domestic interest rates in developing countries have moved
to a premium over industrial country rates, and can surge at
times of currency speculation. Heightened interest rate and
exchange rate volatility pose practical risk management
difficulties for financial intermediaries and reinforce the
need for appropriate infrastructures and incentives for risk
containment, as well as for good macropolicies. On the other
hand, the cost of equity capital has been reduced by
allowing foreign investor access to local equity markets and
allowing local firms to list abroad. Increased international
flows through the equity markets have not been the major
contributor to increased international sources of
volatility. In addition to opening access to foreign-sourced
financial services, more and more countries have been
permitting foreign-owned banks and other financial firms to
operate locally. Although this can represent a threat to
domestic owners of financial firms, the drawback is
outweighed by improved service quality. On all three
fronts--debt, equity, and services--the costs and risks as
well as the benefits of increased financial globalization. knowledges |
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