Financial Globalization, Economic Growth, and the Crisis of 2007-09

In This Review

Financial Globalization, Economic Growth, and the Crisis of 2007-09
By William R. Cline
Peterson Institute for International Economics, 2010
256 pp. $28.95
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Following within a decade of the Asian financial crisis, the recent global financial crisis has revived the debate over the merits of openness to foreign finance, especially for developing countries. Restrictions on international capital movements are back in fashion. In this useful overview, Cline reviews the extensive and scattered economic literature on the contribution of financial openness to economic growth, correcting the mistaken impression that the literature provides little support for it. The results of many studies are overwhelmingly one-sided in showing that financial openness encourages growth -- it has boosted the GDPs of the emerging countries by 0.5 percent a year since 1990, Cline estimates, and it has boosted those of the rich countries by even more. The cumulative gains of opening up to foreign capital outweigh the losses attributable to occasional financial crises (as opposed to global recessions, which hurt countries largely by reducing trade).