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Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

This study provides a candid, systematic, and critical review of recent evidence on this complex subject. Based on a review of the literature and some new empirical evidence, it finds that (1) in spite of an apparently strong theoretical presumption, it is difficult to detect a strong and robust causal relationship between financial integration and economic growth; (2) contrary to theoretical predictions, financial integration appears to be associated with increases in consumption volatility (both in absolute terms and relative to income volatility) in many developing countries; and (3) there appear to be threshold effects in both of these relationships, which may be related to absorptive capacity. Some recent evidence suggests that sound macroeconomic frameworks and, in particular, good governance are both quantitatively and qualitatively important in affecting developing countries’ experiences with financial globalization.

Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

The recent wave of financial globalization that has occurred since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. Although capital inflows have been associated with high growth rates in some developing countries, a number of them have also experienced periodic collapses in growth rates and significant financial crises that have had substantial macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration on developing economies. But much of the debate has been based on only casual and limited empirical evidence.

Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

Measures of de jure restrictions on capital flows and actual capital flows across national borders are two indicators of the extent of a country’s financial integration with the global economy. Understanding the differences between them is important when evaluating the effects of financial integration. By either measure, developing countries’ financial linkages with the global economy have risen in recent years.1 A relatively small group of developing countries, however, has garnered the lion’s share of private capital flows from industrial to developing countries, which surged in the 1990s. Structural factors, including demographic shifts in industrial countries, are likely to provide an impetus to these North-South flows over the medium and long terms.

Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

Theoretical models have identified a number of channels through which international financial integration can help to promote economic growth in the developing world. It has proven difficult, however, to empirically identify a strong and robust causal relationship between financial integration and growth.

International Monetary Fund
This Background Paper and Statistical Annex examines selected issues pertaining to the Mauritian economy, which are all related to the question of how Mauritius will be able in the future to sustain its export-led development and diversify its economy. The paper discusses the impact of the Uruguay Round agreement on the Mauritian economy. The paper also utilizes available data to assess Mauritius’s external competitiveness, which is a major issue as regards the sustainability of high export growth.
International Monetary Fund
This Selected Issues paper on the Republic of Mozambique reports key policy and institutional issues in the macroeconomic management of scaled-up aid and in promoting sustainable private-sector led growth. A further moderate scaling-up of foreign aid could continue to be fully spent and focus on productive priority sectors. This would help achieve the Millennium Development Goals while at the same time eliciting a supply response to mitigate potential Dutch-disease effects brought on by an appreciating real exchange rate.
Mr. Enrique A Gelbard, Mr. Mumtaz Hussain, Mr. Rodolfo Maino, Mr. Yibin Mu, and Mr. Etienne B Yehoue
Islamic finance is a fast growing activity in world markets. This paper provides a survey on Islamic Finance in SSA. Ongoing activities include Islamic banking, sukuk issuances (to finance infrastructure projects), Takaful (insurance), and microfinance. While not yet significant in most Sub-Saharan countries, several features make Islamic finance instruments relevant to the region, in particular the ability to foster SMEs and micro-credit activtities. As a first step, policy makers could introduce Islamic financing windows within the conventional system and facilitate sukuk issuance to tap foreign investors. The entrance of full-fleged Islamic banks require addressing systemic issues, and adapting the crisis management and resolution frameworks. The IMF can play a role by sharing international experiences and providing advice on supervisory and regulatory frameworks as needed.
Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

International financial integration should, in principle, help countries to reduce macroeconomic volatility. The survey presented in this section, including some new evidence, suggests that developing countries, in particular, have not attained this potential benefit. The process of capital account liberalization has often been accompanied by increased vulnerability to crises. Globalization has heightened these risks, since financial linkages have the potential to amplify the effects of both real and financial shocks.

Mr. Ayhan Kose, Mr. Kenneth Rogoff, Mr. Eswar S Prasad, and Shang-Jin Wei

Abstract

There is some evidence of a “threshold effect” in the relationship between financial integration and economic growth. Moreover, there is some preliminary evidence supporting the view that better national governance is associated with lower volatility and enhanced benefits from financial integration.