Globalization_and_Capital_Markets - Globalization and...

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Globalization and Capital Markets Maurice Obstfeld University of California, Berkeley, CEPR, and NBER Alan M. Taylor University of California, Davis, and NBER March 2002 This paper was prepared for the NBER conference “Globalization in Historical Perspective” held in Santa Barbara, May 4–5, 2001, and is forthcoming in the NBER conference volume of the same name edited by Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson. Jay Sham- baugh and Julian di Giovanni provided superb research assistance. For assistance with data we thank Michael Bordo, Gregory Clark, Stephen Haber, Ian McLean, Satyen Mehta, Chris Meissner, and Michael Twomey. For editorial suggestions we thank Michael Bordo. We received helpful comments from our discussant Richard Portes; from Marc Flandreau and other conference par- ticipants at Santa Barbara; from Michael Jansson, Lawrence Officer, and Rolf vom Dorp; and from participants in seminars at Stanford Graduate School of Business, University of Southern California, King’s College, Cambridge, and Universidad Argentina de la Empresa, Buenos Aires. Obstfeld acknowledges the financial support of the National Science Foundation, through a grant administered by the National Bureau of Economic Research. Department of Economics, 549 Evans Hall #3880, University of California, Berkeley, CA 94720-3880. Tel: 510-643-9646. Fax: 510-642-6615. Email: < [email protected] > . WWW: < > Address: Department of Economics, University of California, One Shields Avenue, Davis, CA 95616-8578. Tel: 530-752-1572. Fax: 530-752-9382. Email: < [email protected] > . WWW: < > .
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1 Global Capital Markets: Overview and Origins At the turn of the twenty-first century, the merits of international financial inte- gration are under more forceful attack than at any time since the 1940s. Even mainstream academic proponents of free multilateral commodity trade, such as Bhagwati, argue that the risks of global financial integration outweigh the benefits it affords. Critics from the left such as Eatwell, more skeptical even of the case for free trade on current account, suggest that since the 1960s “free international capital flows” have been “associated with a deterioration in economic efficiency (as measured by growth and unemployment).” 1 The resurgence of concerns over international financial integration is under- standable in light of the financial crises in Latin America in 1994–95, East Asia and Russia in 1997–98, and Argentina in 2001–02. Proponents of free trade in tangible goods have long recognized that its net benefits to countries typically are distributed unevenly, creating domestic winners and losers. But recent inter- national financial crises have submerged entire economies and threatened their trading partners, inflicting losses all around. International financial transactions rely intrinsically on the expectation that counterparties will fulfill future contractual commitments; they therefore place confidence and possibly volatile expectations at center stage.
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