Financial Flows and Global Integration

Abstract

Like technological advancement or long-run economic growth, evolution of global financial integration was not “a record of ever-moreperfectly-functioning markets with ever lower transaction costs and ever expanding scope” (Obstfeld and Taylor, 2002). Long-term growth of global financial markets was far from linear. Vicissitudes in the volume of financial flows were more common than uncommon. There were periods of slow growth in global financial integration, followed by those of rapid growth as well as periods of virtual standstill and reversals. There were periods when global financial integration was limited among a small number of countries, which were grouped in two or three categories and there were epochs when this integration expanded much more widely geographically. Liberalized markets did not enjoy high political popularity. Several periods witnessed strong reactions against market trends, in particular the financial markets. In the recent past, in the middle of the twentieth century and towards its end, such cynicism was easy to notice. Reacting to downsides of financial globalization, anti-market and anti-globalization voices became particularly strident towards the end of the last century.