What are the things both liberalization and globalization have in common??

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.

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