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Financial Globalization and Financial Development

 

Global financial integration and financial development opens the door to more external and domestic financing, higher growth, and broader risk diversification for governments, firms, and consumers in developing countries. However, they also entail risks and leave users exposed to the vagaries of financial markets.

 

The research program in this area examines issues related to financial globalization and financial development, for example, how they are linked, what drives them, the benefits and risks they entail, and how they affect growth and economic performance. The topics under study include capital flows, exchange rate policy, risk diversification, risk management, systemic risk, the propagation of financial shocks across countries, the macroeconomic effects of aid and debt forgiveness, the functioning of domestic and international financial institutions and markets, bank stability, access to finance, and financial crises.

 

The research is organized around five broad topics:

  • Financial globalization addresses a range of policy issues that arise as countries attempt to link more deeply with international financial markets, including the policy and institutional factors that shape the costs and benefits from integration, and the relation between international integration and domestic financial market development.
  • Financial development  studies some of the main issues developing countries face when trying to improve the functioning of their financial system. For example, it analyzes what institutions and policies lead to higher financial development, how financial intermediaries behave and what incentives they face, how market function, the emergence of currency and maturity mismatches, and how firms can increase access to finance.
  • Financial crises and contagion analyzes why financial crises happen and why they are transmitted within countries (across financial intermediaries and sectors) and across countries. For example, why was the Asian crisis transmitted to Russia, the US, and Latin America? And why has the US subprime problem generated a global financial crisis and economic collapse? Research in this area studies the origins of crises, the mechanisms through which they propagate, and the policies to manage and prevent them – including the role of debt and asset management for crisis vulnerability.
  • International capital flows examines the factors driving the volume and composition of capital flows, the options available to governments for managing them, and their consequences for developing countries. Among the latter, particular attention is paid to international aid flows and debt forgiveness.
  • Exchange rates features research on the choice of exchange rate regime and its consequences for macroeconomic outcomes, the assessment of real exchange rate misalignment, and the possible use of the real exchange rate as a growth-promoting tool.

Policy Research Working Papers 

For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”).

WPS6218Sovereign defaults and expropriations : empirical regularitiesEden, Maya; Kraay, Aart; Qian, Rong2012/10
WPS6209How firms use domestic and international corporate bond marketsGozzi, Juan Carlos; Levine, Ross; Martinez Peria, Maria Soledad; Schmukler, Sergio L.2012/09
WPS6105Financial globalization in emerging countries : diversification vs. offshoringCeballos, Francisco; Didier, Tatiana; Schmukler, Sergio L.2012/06
WPS6072On the international transmission of shocks : micro-evidence from mutual fund portfoliosRaddatz, Claudio; Schmukler, Sergio L.2012/05
WPS6059Should Wall-Street be occupied ? an overlooked price externality of financial intermediationEden, Maya2012/05
WPS5993Why do some countries default more often than others ? the role of institutionsQian, Rong2012/03
WPS5870Consumption baskets and currency choice in international borrowingBengui, Julien; Nguyen, Ha Minh2011/11
WPS5777Engendering tradeDo, Quy-Toan; Levchenko, Andrei A.; Raddatz, Claudio2011/08
WPS5768Gross capital flows : dynamics and crisesBroner, Fernando; Didier, Tatiana; Erce, Aitor; Schmukler, Sergio L.2011/08
WPS5700Deconstructing herding : evidence from pension fund investment behaviorRaddatz, Claudio; Schmukler, Sergio L.2011/06
WPS5605Sudden stops and financial frictions : evidence from industry level dataCowan, Kevin; Raddatz, Claudio2011/03
WPS5524Unexploited gains from international diversification : patterns of portfolio holdings around the worldDidier, Tatiana; Rigobon, Roberto; Schmukler, Sergio L.2011/01
WPS5203When the rivers run dry : liquidity and the use of wholesale funds in the transmission of the U.S. subprime crisisRaddatz, Claudio2010/02
WPS5174Valuation effects with transitory and trend productivity shocksNguyen, Ha Minh2010/01

WPS5056The long and the short of emerging market debtOpazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.2009/09
WPS4926Optimal devaluationsHevia, Constantino; Nicolini, Juan Pablo2009/05
WPS4897Emerging market fluctuations : what makes the difference ?Hevia, Constantino2009/04
WPS4872Multilateral debt relief through the eyes of financial marketsRaddatz, Claudio2009/03



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