Globalization of World Financial Markets Essay Example | Topics and Well Written Essays - 2000 words

Globalization of World Financial Markets - Essay Example Research finding proving the detrimental effect ÃŽ ¿f liberalization on the financial system. The Wyplosz research paper says that the evidence based on studies ÃŽ ¿f the experience with liberalization in a sample ÃŽ ¿f 27 developing and developed economies seems to be converging to the view that liberalization contributes to both banking and currency crisis.A study by Eichengreen, Andrew Rose and Wyplosz (1995) found that the presence ÃŽ ¿f capital controls reduces the possibility ÃŽ ¿f a currency crisis. This result has been confirmed in a 1999 study by Marco Rossi (IMF working paper WP/99/66) for a sample that includes developing countriesAccording to Wyplosz study, liberalization ÃŽ ¿f financial markets may be desirable in the long term, but it is risky in the short to medium term, and developing countries should approach this as a delicate step calling for cautious policy reactions, according to a research study for the Group ÃŽ ¿f 24 on International Monetary Affairs, the devel oping country grouping at the IMF and the World Bank.In theory the liberalization ÃŽ ¿f capital accounts and financial markets, promoted and pushed by the International Monetary Fund and the international financial institutions (IFIs) is different from the push at the World Trade Organization for liberalization ÃŽ ¿f trade in financial services.However, whether it be through capital account liberalization or via the liberalization ÃŽ ¿f trade in financial services, the effect on developing countries could be the same.... According to Wyplosz study, liberalization f financial markets may be desirable in the long term, but it is risky in the short to medium term, and developing countries should approach this as a delicate step calling for cautious policy reactions, according to a research study for the Group f 24 on International Monetary Affairs, the developing country grouping at the IMF and the World Bank. In theory the liberalization f capital accounts and financial markets, promo ted and pushed by the International Monetary Fund and the international financial institutions (IFIs) is different from the push at the World Trade Organization for liberalization f trade in financial services. However, whether it be through capital account liberalization or via the liberalization f trade in financial services, the effect on developing countries could be the same, particularly in the absence f major reforms to the international monetary and financial systems. In and by itself, the study finds that liberalization does not pose a lethal threat to the balance-of-payments and may carry significant long-term gains. However, he also stated that the positive influence f liberalization is not easily confirmed and most recent studies find little or no effect though some early results suggest that fast growth and financial development go hand in hand, In the case f capital account liberalization, the peak to trough decline in the output gap exceeds 20 percent. No other shock ever seems responsible for such a massive contraction. The boom exceeds the bust in magnitude, but not in length. Thus liberalization brings about an overall gain in terms f output. With the increasing