Globalization is one of the most controversial topics of the early
twenty-first century.1
Academic debates currently raging about
globalization include whether it even exists (Unger, 1997), whether it is
more important now than at some earlier date (Bordo, Eichengreen, and
Irwin, 1999), whether it is displacing the nation state (Strange, 1996;
Wade, 1996), and whether it is more important than regionalism
(Fishlow and Haggard, 1992; Oman, 1994) or localism (Rosenau,
1997a). Also, of course, there are extensive analyses as well as polemics
about whether the results are good or bad and for whom (see especially
Rodrik, 1997 and 1999). Recently, such controversies have spilled over
from academic journals to street demonstrations in locations as diverse
as Seattle, Washington, Montreal and Genoa.
This paper takes for granted that globalization exists and that it
is a very important phenomenon without entering into the various
comparisons with the past or other parallel processes.2
The main
objective is to analyze the impact of globalization over the past several
decades, particularly in terms of its effects on developing countries. To
what extent has globalization constrained decision making in
developing countries, and how has it affected the potential for growth
and equity. While the focus is on the globalization of finance –
arguably the most important aspect of the multifaceted process – we
first take a broader look at the globalization phenomenon. This is
followed by data on new trends in finance for developing countries, ananalysis of the impact of the new pattern of financial flows, and some conclusions with respect to
policy recommendations.
Four basic arguments are developed in the paper with respect to the impact of financial
globalization. First, globalization has increased the capital available to developing countries, which
potentially increases their ability to grow faster than if they had to rely exclusively on their own
resources. Not all capital flows contribute equally to growth, however; short-term flows and the
purchase of existing assets are less valuable than investment in new facilities. At the same time, the
increasing mobility of capital can also lead to greater volatility, which is very costly for growth.
Second, capital flows are unequally distributed by region and country, thus skewing the patterns of
growth. There is also an unequal distribution of capital within countries by geographic area, sector,
type of firm, and social group, creating a division between winners and losers. Third, government
attempts to extract the benefits from the globalization of capital, while limiting the costs, is more
possible than usually thought. The source of many problems is local rather than global, and the
experience of several countries indicates that “heterodox” policies can be followed. Finally, policy
changes at the global, regional, and national levels could improve the picture just sketched out.
