Trends Of Financial Globalization

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I. Introduction

To begin with, this essay uses the definition termed by Sergio L. Schmukler, a World Bank Development Research Group Senior Economist, who defines financial globalization as “the integration of a country’s local financial system with international financial markets and institutions.”

The aspect of finance in globality has been long-existing in the numerous trends of globalization, with its foundation being regarded as the Bretton Woods Agreement in 1944. Ever since then, the world has undergone numerous economic depressions and miracles under the agreement’s promotion of the liberal international integration of finance and trade. However, the main surge in financial integration didn’t occur until the 1970s, after the oil crisis
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The Agents and Changes Driving Financial Globalization Though financial globalization has been influencing the world for an intensive period of time, it was not until the late 19th century when it began to appear, and after the Bretton Woods Agreement when it was formally acknowledged. The four main backstage driving forces and a major change that occurred in the mid-19th century was believed to be the main contributing strength that gave to financial globalization. Respectively, the four agents are: Government, Borrowers, Investors and Financial institutions and the major change is: telecommunication advancement.

A. Four
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Recent Trends of Globalization

However, despite financial globalization has increased the interdependence between countries’ economies, allowing more foreign net capital inflows to pour into developing and developed countries, there are still certain setbacks to such phenomenon. Some of which could be seen in the recent wave of financial globalization. In this new wave, there are two important developments worth noting: the drastic increase in the worldwide net capital flows and the increase in domestic investors using foreign financial services.

As shown in figure 1 and 2, it is easy to see as the net capital flows surged dramatically since the 1970s, so have the proportion of net private capital. Which is approximately three times greater than official development assistance and official aid. However, though the net private capital is increasing year by year, countries tend to receive different amount of capital inflow, especially the top 12 countries. Such phenomenon is causing the increase in the gap between economies as some countries are benefiting more than others. Furthermore, the second important development could be seen from figure 3 and 4. There appears to be a growing trend of corporations using the American equity market to raise and trade capitals, indicating the growing use of international intermediaries by both developed and developing country enterprises. However, similar to the previous phenomenon, the major actors of the phenomenon only includes a
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