Financial Globalization and the Emerging Market Economies

Financial Globalization and the Emerging Market Economies

Financial Globalization and the Emerging Market Economies

Financial Globalization and the Emerging Market Economies

Synopsis

Dilip Das examines the impact of ever-increasing financial globalization on emerging market economies, both in the former communist countries of eastern Europe and the developing world in general.

Excerpt

From an economic point of view, globalization represents a process of increasing international division of labor on the one hand and growing integration of national economies through trade in goods and services, cross-border corporate investment, and capital flows on the other. There is serendipity in globalization. As globalization, particularly financial globalization, progressed over the preceding quarter-century a new group of economies made its presence felt in the global economy. It was christened the emerging market economies. Several of them discernibly and measurably benefited from globalization during the preceding quarter-century. These economies tried to establish a framework for long-term economic growth which requires changes that, among other things, reduce government spending, lower trade barriers, and make the economy and financial markets more attractive to global investment. The liberalization, deregulation and reform-related gains in these economies were at the cost of at least some reform-induced pain. Presently, the emerging market economies are better integrated in the global economy than the rest of the developing world. Therefore, they have succeeded in benefiting from the synergy that the onward march of globalization provides.

This dynamic group of transitioning economies is endeavoring to seek a firmer foothold in the contemporary global economy than it had in the past. Chapter 1 shows that it is a medium-sized group of heterogeneous economies that is endeavoring to go down the matured economy path at a rapid clip, so that members are able to "emerge" as fully-fledged matured market economies in the foreseeable future. The industrial economies perceive them as a group of liberalizing and reforming economies that, by adopting liberalization and reform strategies, are creating opportunities for investment of surplus capital from the industrial economies, as well as markets for exporting goods and services. In their view, this country group represents inter alia the "emergence" of additional demand and new markets.

With liberalization, deregulation and reforms, global capital flow to the emerging market economies strengthened. Although in the 1970s they were limited to the emerging market economies of the western hemisphere,

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