Financial and Capital Account Liberalization, Financial Development and Economic Development: A Review of Some Recent Contributions

Abstract

This article presents a review of some recent contributions on the relation between global finance and economic development in emerging economies. It first, stresses the growing consensus among economists on the financial instability that financial and capital account liberalization can possibly cause in emerging economies. It then outlines and compares two alternative strategies to tame such instability. The comparison is between the “good-institutions need-to-come-first” approach put forward by some mainstream economists, and the request for a deeper reform of the existing monetary system advocated by heterodox economists.

Keywords:

• financial liberalization
• capital account liberalization
• financial crises
• global economic governance

JEL Codes:

• E44
• F32
• F33
• F38