Financial Globalization

Financial Globalization has been taking place in the world over many years but its growth has increased since early 1990s. The Globalization of Finance means the flow of capital and corporate investments between various countries.

Financial Globalization increased as Globalization picked up speed in the world and which means the dismantling of trade barriers between nations. Globalization has increased in recent years due to the massive progress that has been made in the field of technology especially in transport and communications. Thus as globalization proliferated, the globalization of finance was bound to increase. In order to promote world trade which in its turn led to the growth of Financial Globalization, 2 international institutions of finance were set up that are the World Bank and the International Monetary Fund (IMF).

The growth in Financial Globalization can be seen from the fact that from 1973 to 2005, world trade increased at the rate of 11% per year rising from more than 22% of the GDP of world to 42% in 2005. The pace at which Financial Globalization has increased can also been seen from the fact that from 1973, the capital flow between nations has risen from 5% of the GDP of world to 21% in 2004. The flow of capital from developed countries to developing countries has also increased since Financial Globalization increased dramatically in the early 1990s and now amounts to more than US$ 300 billion per year in 2005.

The various advantages of Financial Globalization are that as capital flow has increased in each and every country it helps in protecting the nations against financial crisis. Also as the capital flows between nations due to the Globalization of Finance it helps in more efficient world allocation of money. Further, the advantage of Financial Globalization is that with more money entering the nations, people now have more money at their disposal and this has helped in improving the international living standards. The various disadvantages of Financial Globalization are that increased interconnectedness has exposed the nations to financial shocks. Further the disadvantage of Financial Globalization is that there is always the risk factor that sudden reversal of capital may lead to economic disruption on a large- scale. Also it has been seen that Financial Globalization has proved beneficial for the developed countries who have exploited the developing countries.

Financial Globalization has increased in the last few years but it is far from complete. The nations from all over the world must make polices in order to further encourage the Globalization of Finance but it must be kept in mind that it proves beneficial for all nations and is not harmful to any nation.