Globalization and Economic Development
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Globalization and Economic Development

Essays in Honour of J. George Waardenburg

Edited by Servaas Storm and C. W.M. Naastepad

Globalization is widely regarded as a means not only of ensuring efficiency and growth, but also of achieving equity and development for those countries operating in the global economy. The book argues that this perception of globalization as the road to development has lost its lustre. The experience of the 1990s belied expectation of the gains, such as faster growth and reduced poverty, which could be achieved through closer integration in the world economy.
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Chapter 8: Globalization of capital markets: Some analytical and policy issues

Mihir K. Rakshit


1 Mihir K. Rakshit 1. INTRODUCTION The 1970s marked a watershed in the development of global financial markets in more ways than one. First, the Bretton Woods system came to an end with the floating of the yen and major European currencies against the dollar in March 1973, and the gradual switchover by more and more countries to flexible exchange rate regimes. Second, with the move towards capital account convertibility by most industrialized nations and the accumulation of huge external assets by oil producing countries, there was a sharp rise in the quantum of international capital movements. Third, and the most important for our purpose, there occurred a quantitative and also a qualitative change in the flow of foreign capital to (non-oil producing) developing countries. Capital inflows in these countries registered a quantum jump during the period 1972–83 and again from the late 1980s.2 What is no less significant, while the earlier capital flows to developing countries consisted almost entirely of official and government guaranteed loans, since 1973 private capital flows have assumed increasing importance and there has been a sharp decline in loans from official sources.3 These developments in international financial markets, together with the trend towards lowering of barriers to trade in goods and services, were widely expected to promote efficient allocation of world resources and add significantly to the economic prosperity of all countries, both developed and developing. Emerging market economies in general were expected to reap substantial benefits...

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