Trade globalization has lifted many of the world’s poorest workers out of poverty. But without financial globalization, says Frederic Mishkin, poor nations can’t reach the next stage of development.
Why is financial globalization so important for emerging market economies?
It’s critical for emerging market countries to have an institutional framework that allows their financial systems to work well. This is frequently not understood — in fact, even some high policy officials don’t understand why finance is important to economic well-being and growth. For an economy to grow, you need money channeled to productive investments. If that doesn’t happen, a country will never make it. One of the serious problems in emerging market countries is their financial systems don’t work well: they don’t have good property rights, and they don’t have a legal system that allows enforcement of contracts — things that we take for granted in places like the United States. As a result, businesses and households often can’t get the funds they need.
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