FINANCIAL STABILITY IN THE GLOBALISED ECONOMY

Role of international financial stability in an increasingly globalised economy

Role of international financial stability in an increasingly globalised economy

Introduction

There is little unanimity in views regarding the implications of financial globalization in the financial profession. Positions have ranged from decidedly favourable to entirely unfavourable. There are many who reached mixed conclusions. The debate on this imperious subject is yet to end on any one side of the divide. Failure of the empirical studies to come to an agreement has made those who oppose financial globalization and regard it as a source of macro financial and financial instability more certain in their negative perspective. One group of noted economists considers swift liberalization of capital account and unrestrained inflows of capital from the global private capital markets as serious impediments to growth and macro financial and financial stability (Broz 2000). The string of crises that occurred in individual and regional economies made their case rationally strong, as did the on-going global recession, which was christened by the financial media as the crash of 2008.

What is notable is the potential that corporations have to shape policy within nation-states. There are two effects of this: in the host nations it remains the case that politicians have to be mindful of the adage that what is good for national champions is good for the national state. In countries that are competing with one another for foreign direct investment from these global entities, then, in a process more akin to a beauty contest than any financial planning model, less developed nations will sometimes compete against each other in terms of tax incentives, grants and other inducements to attract firms to their country. Within countries regional policies operate similarly to try to bring investment to particular regions. Of course, these corporations are not entirely footloose and fancy-free: often they are deeply embedded within specific locales, perhaps because of a specific infrastructure, suppliers, or university research centres. However, there are a lot more firms than countries in the world. UNCTAD - which hosts the United Nations Centre on Transnational Corporations -estimates that there are 60,000 transnational corporations globally. Because states are spatially fixed they are immobile compared to firms and so their governments have to struggle with the policy implications of globalization: they cannot decamp or disengage. Most of these global corporations are domiciled in relatively few countries: firms from Japan and the United States dominate the list of global 500 firms. There are twice as many US firms (nearly 200) as Japanese (about 100). Germany, the UK and France each have nearly half as many as Japan, with numbers distributed around forty. After these few countries, most other countries hardly rate, with the exceptions of Switzerland, Italy, South Korea and Canada, who each have about ten such firms, while there are a small handful of firms from the remaining OECD countries as well as one or two from China, Taiwan, Venezuela and some other industrialized economies.

Discussion

The UK, for instance, is a country with a ...