Financial Globalization and Economic Policies

We review the large literature on various economic policies that could help developingeconomies effectively manage the process of financial globalization. Our central findingsindicate that policies promoting financial sector development, institutional quality and tradeopenness appear to help developing countries derive the benefits of globalization. Similarly,sound macroeconomic policies are an important prerequisite for ensuring that financialintegration is beneficial. However, our analysis also suggests that the relationship betweenfinancial integration and economic policies is a complex one and that there are unavoidabletensions inherent in evaluating the risks and benefits associated with financial globalization.In light of these tensions, structural and macroeconomic policies often need to be tailored totake into account country specific circumstances to improve the risk-benefit tradeoffs offinancial integration. Ultimately, it is essential to see financial integration not just as anisolated policy goal but as part of a broader package of reforms and supportivemacroeconomic policies....