The Ten-year Experience
Edited by Lucjan T. Orlowski
Chapter 7: Global integration of financial markets and its consequences for transition economies
Marek Dabrowski ˛ INTRODUCTION Recent acceleration of global integration can be attributed to several factors, including a trend towards liberalization of economic policies in both developed and developing countries that has evolved over the last two decades. The economic transition from a command economy to a market system in Central and Eastern Europe (CEE) and the former Soviet Union (FSU) has additionally strengthened this tendency. Specifically, the following market-orientated measures applied by developing and transition economies (TEs) have contributed to global financial integration: • • • • advancing capital account liberalization; liberalization of financial markets and the banking system; transnational expansion of large banks and banking groups; and privatization of banks and other financial institutions. Apart from policy and regulatory framework, the technological progress in transportation, telecommunication and information systems has played an enormous role in global integration. Technological progress along with education have brought all international economic players closer together, shortening distances, thus lowering the cost of trade and capital transactions. As increasing integration of financial markets has become the most dynamic and controversial aspect of globalization processes in the last two decades, this chapter will concentrate on discussing its advantages and disadvantages as well as its consequences for monetary policies and exchange rate regimes in TEs. 113 114 Financial openness and monetary integration ARGUMENTS FOR AND AGAINST CAPITAL ACCOUNT LIBERALIZATION Increasing financial integration has both its advocates and opponents. This relates particularly to freedom of short-term capital movement and pace of capital account liberalization. On the one hand, fast capital account liberalization can...
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