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Financial Globalization, Growth, and Volatility in Developing Countries

Financial Globalization, Growth, and Volatility in Developing Countries

Chapter:
(p.457) 11 Financial Globalization, Growth, and Volatility in Developing Countries
Source:
Globalization and Poverty
Author(s):
Eswar S. PrasadKenneth RogoffShang-Jin WeiM. Ayhan Kose
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226318004.003.0012

This chapter states that both developed and developing countries have become increasingly open to capital flows, measured using either policy instruments such as capital controls or ex post capital flows. Economic growth has been the most reliable source of poverty reduction. An increase in macroeconomic volatility tends to decrease the well-being of poor households. The data shows that countries that are in the early stages of financial integration have been exposed to significant risks in terms of higher volatility of both output and consumption. The composition of capital inflows and the maturity structure of external debt appear to be linked with higher vulnerability to the risks of financial globalization. The data generally support the importance of employing various complementary policies to increase the benefits of globalization for the poor.

Keywords:   capital flows, economic growth, poverty, macroeconomic volatility, poor households, financial globalization, developing countries

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