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IMF doubtful about financial integration affecting economic growth
Washington, Mar 18: IMF officials doubted whether financial integration helped economic growth but asserted that trade integration benefitted developing countries.
Washington, Mar 18: IMF officials doubted whether financial integration helped economic growth but asserted that trade integration benefitted developing countries.
Kenneth Rogoff, counsellor and director of research, and three other IMF officials- Eswar Prasad, Shang-Jin Wei and Ayhan Kose said that empirical evidence to the effect was unclear.
"In theory, financial integration could help raise the economic growth rates in developing countries. However, empirically, or in terms of actual experiences, it is difficult to find strong evidence of a causal relationship between financial integration and growth", they said.
Financial integration, especially in the form of debt, appeared to be associated with increase in macroeconomic volatility in many developing countries, atleast in the short run, they said.
They claimed that contrary to the predictions of some theories, from 1980s to 1990s, when financial integration enjoyed a great leap forward for some developing countries, their consumption volatility, instead of declining, actually increased by 20 percent. Financial crises constituted sharp manifestations of volatility.
They contrasted this with the effect of trade integration, which a majority of studies found to be "clearly beneficial for developing countries."
The authors, however, stressed that existing data did not allow definite conculusions of financial integration in the long run.
They added that experience of globalisation hinged upon governance with high levels of corruption and corporate tax having a negative effect on investment.
Bureau Report
Kenneth Rogoff, counsellor and director of research, and three other IMF officials- Eswar Prasad, Shang-Jin Wei and Ayhan Kose said that empirical evidence to the effect was unclear.
"In theory, financial integration could help raise the economic growth rates in developing countries. However, empirically, or in terms of actual experiences, it is difficult to find strong evidence of a causal relationship between financial integration and growth", they said.
Financial integration, especially in the form of debt, appeared to be associated with increase in macroeconomic volatility in many developing countries, atleast in the short run, they said.
They claimed that contrary to the predictions of some theories, from 1980s to 1990s, when financial integration enjoyed a great leap forward for some developing countries, their consumption volatility, instead of declining, actually increased by 20 percent. Financial crises constituted sharp manifestations of volatility.
They contrasted this with the effect of trade integration, which a majority of studies found to be "clearly beneficial for developing countries."
The authors, however, stressed that existing data did not allow definite conculusions of financial integration in the long run.
They added that experience of globalisation hinged upon governance with high levels of corruption and corporate tax having a negative effect on investment.
Bureau Report