Financial globalization: A reappraisal

Abstract

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International risk sharing during the globalization era

“…The improved risk sharing we uncover is probably not short term, brought about through insurance contracts or trading country-risk-specific securities. It is a long-term phenomenon, driven perhaps by output-growth-rate convergence related to trade in ideas and technologies and to diffusion of institutions, which Kose et al (2006) call the collateral benefits of globalization. Our measure is not designed as a test for perfect risk sharing, but our measure is consistent with the existing view that perfect risk sharing remains a distant goal.…”

“…1 For a review of empirical work, see Kose et al (2006), Corcoran (2007), and Kose, Prasad, and Terrones (2007). For the growth effect of global financial integration, see Obstfeld (1994a), who builds a model in which global diversification enhances growth in a small open economy.…”

Productivity Growth and Technological Diffusion Through Foreign Direct Investment

“…Recently, economists have begun to examine whether FDI, a factor largely ignored in the empirical growth literature, has an independent direct impact on per capita income growth (e.g., Blonigen and Wang 2005;Melitz 2005;Kose et al 2006). As noted earlier, there is no cross-country study that examines the effect on TFP growth of FDI yet.…”

“…However, it can be accompanied with macroeconomic volatility and even financial crises. Fuelling this debate, the empirical evidence on the effects of financial integration on growth has been mixed (Kose et al 2006).…”

“…Given the striking evidence on the importance of TFP in explaining the cross-country income differences and the preeminence of the technology development and diffusion as a key determinant of TFP in endogenous growth theory, it is surprising that there is no crosscountry empirical study on the effect of FDI on TFP growth. 3 In a comprehensive review of the literature on financial globalization, Kose et al (2006) also conclude that how different types of capital flows including FDI affect TFP growth is one of the important future research topics. Our article fills this important gap in the literature.…”