Assiduously tracking the trends and consequences of globalization, the IMF's quarterly magazine Finance & Development has been a major forum for discussing-and dissecting-the policy options and challenges faced by governments in an era when many national decisions transcend borders. This valuable compilation of articles published over the past eight years focuses on financial globalization, including the policy implications of the huge growth in cross-border capital flows. Articles also look at the expansion of world trade, explore the impact of globalization on jobs, taxation, and the poor, and examine the digital divide between developed and some developing countries. An extraordinary summary that distills nearly a decade of accelerated change.



Cover, Kim Kyung-Hoon/Reuters/Corbis; p. vi, Joe Raedle/Getty; p. 17, Stephen Shaver/UPI; p. 33, You Sung-Ho/Reuters; p. 36, Claro Cortes IV/Reuters; p. 40, Brian Kersey/UPI Newspictures; p. 45, Enrique Marcarian/Reuters; p. 47, Darren Whiteside/Reuters; p. 59, Claro Cotes IV/Reuters; p. 63, Royalty-free/Corbis; p. 69, Mauricio Lima/Agence France Presse; p. 71, Matthias Schrader/Deutsch Presse Agentur; p. 77, Paulo Whitaker/Reuters; pp. 83 and 85, Massoud Etemadi; p. 86, Hoang Dinh Nam/Agence France Presse; p. 88, Reuters.


p. 20, Massoud Etemadi; p. 67, Lai Oy Louie.

© 2007 International Monetary Fund


Jeremy Clift and Elisa Diehl

Production: IMF Multimedia Division, Creative Services

Cover and design: Luisa Menjivar

Composition: Lijun Li, Noel Albizo, and Lai Oy Louie

ISBN 9781589065710

Published April 2007

Price: $22.00

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The growing integration of the world economy—one of the main features of globalization—is increasingly affecting the policy choices of IMF member countries. For that reason, Finance & Development magazine has been tracking the trends and consequences of globalization, which refers to the increasing speed and ease with which goods, services, factors of production, the ownership of assets, information, ideas, and consumers themselves move across national borders.

This compilation of articles published over the past eight years in the pages of F&D examines the economic implications of, and responses to, globalization in an era when porous borders limit the domestic effectiveness of many national decisions while causing their effects to be transmitted internationally. As the title suggests, the focus is on financial globalization, including the policy implications of the huge growth in cross-border capital flows. Since 1995, these flows have tripled to $6.4 trillion, reaching about 14.5 percent of world GDP, after 15 years of staying within a relatively narrow range of 2–6 percent. Should the surge in capital swirling around the globe be cause for joy or alarm? Alarm seemed to dominate in the aftermath of the East Asian financial crisis in the late 1990s. But a major reappraisal is now under way of the costs and benefits of these global flows, especially since many developing countries are grappling with the question of whether they should open up more to these flows or use capital controls to resist them.

The compilation is the second to be published by F&D, following the collection of articles on health and development. By publishing the articles together, we hope that they will form a useful starting point for those examining the globalization of finance.

Laura Wallace


Finance & Development

April 2007


  • Preface

  • Beyond the Blame Game

    • A new way of looking at financial globalization reexamines its costs and benefits

    • M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei

  • Liberalizing Capital Account Restrictions

    • M. Ayhan Kose and Eswar Prasad

  • Global Capital Flows: Defying Gravity

    • Mangal Goswami, Jack Ree, and Ina Kota

  • The Paradox of Capital

    • Is foreign capital associated with economic growth and, if not, why does it flow “uphill”?

    • Eswar Prasad, Raghuram Rajan, and Arvind Subramanian

  • Globalization: The Story Behind the Numbers

  • Surmounting the Challenges of Globalization

    • Eduardo Aninat

  • Is Liberalization Reversible?

    • Globalization is unsettling for many despite its many benefits

    • Harold James

  • Examining Global Imbalances

    • What new data tell us about the external wealth of nations

    • Philip R. Lane and Gian Maria Milesi-Ferretti

  • Converting a Tiger

    • Lessons from India’s gradualist approach to capital account convertibility

    • Yaga Venugopal Reddy

  • Economic Policy Implications of Global Financial Flows

    • The lack of a lender of last resort creates a vacuum in the international institutional structure

    • Manuel Guitián

  • The Changing Face of Investors

    • The implications for financial stability of the sharp rise in international capital flows

    • Ceyla Pazarbaşloğlu, Mangal Goswami, and Jack Ree

  • Dealing with Global Fluidity

    • With new forces shaping global capital markets, participants in international finance are well advised to rethink their operating models

    • Mohamed A. El-Erian

  • The Globalization of Finance

    • Despite considerable benefits to national economies, financial globalization has changed the structure of their markets

    • Gerd Häusler

  • Are Foreign Investors in Emerging Market Economies a Panic-Prone Herd?

    • What are the consequences of herdlike behavior?

    • Eduardo Borensztein and R. Gaston Gelos

  • Small Fish, Big Pond

    • What is the future for developing country capital markets in a globalized economy?

    • Augusto de la Torre and Sergio Schmukler

  • Wising Up about Finance

    • With tighter links between national economies and global financial markets, better financial analysis is critical to macroeconomic management

    • Leslie Lipschitz

  • The New World of Banking

    • Four trends altering the financial world pose challenges for the effective supervision and regulation of the financial sector

    • Tomás J.T. Baliño and Angel Ubide

  • Taking the Plunge Without Getting Hurt

    • An IMF study suggests that opening up to the global economy could help developing countries cope with the adverse effects of volatility on growth

    • M. Ayhan Kose, Eswar S. Prasad, and Marco E. Terrones

  • Lifting All Boats

    • A critical survey of recent studies on trade liberalization

    • Andrew Berg and Anne Krueger

  • Trade, Growth, and Poverty

    • How has increased participation in international trade affected developing countries economically?

    • David Dollar and Aart Kraay

  • Globalization at Work

    • Dorothea Schmidt

  • Making the WTO More Supportive of Development

    • How to help developing countries integrate into the global trading system

    • Bernard Hoekman

  • Making Globalization Work for the Poor

    • Point-Counterpoint between Kevin Watkins and David Dollar and Aart Kraay

  • Demystifying Outsourcing

    • The numbers do not support the hype over job losses

    • Mary Amiti and Shang-Jin Wei