Globalization report card
Lozada, Carlos
GLOBALIZATION REPORT CARD CARLOS LOZADA Welcome honesty from the IMF Halk about good timing. On March 17, the same day that President George W. Bush issued his dramatic forty-eight-hour ultimatum...
...Will anti-globalization activists seize on this document as proof that all economic integration-not just that of financial markets but trade integration as well- hurts poor nations more than it helps...
...So far, the initial press coverage has been scant...
...Such a conclusion inevitably evokes the writings of Columbia University economist Joseph Stiglitz, whose broadside attacks against the IMF have become so predictable that they take on caricatured form (see my September 27, 2002 column, "Discontent and Its Globalization...
...Norton), the 2001 Nobel Prize-winner takes the Fund to task for relying on faulty economics in formulating its advice for low-income economies...
...Theoretical models have identified a number of channels through which international financial integration can promote economic growth in developing countries," the authors explain, almost wistfully...
...In Globalization and Its Discontents (W.W...
...Unfortunately, a simplistic or overzealous reading of the IMF's welcome admission may threaten not just the downside of globalization, but its benefits as well...
...So, what's the big deal with the IMF report...
...Put another way, the goal of financial liberalization and integration that the IMF has vigorously pursued in recent years hasn't really worked out so well in practice...
...Nevertheless, the danger is that the IMF's admission will be taken too far...
...Will anything come of these findings...
...With disarming candor, the four coauthors-including IMF chief economist Kenneth Rogoff-admit the failings of their elegant textbook constructs regarding the integration of financial markets...
...On March 17, the same day that President George W. Bush issued his dramatic forty-eight-hour ultimatum to Saddam Hussein, the International Monetary Fund (IMF) produced an eighty-six-page research paper, with the rather antiseptic title "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence...
...Supporters of financial integration have often argued that openness to foreign investment can help develop domestic financial markets and help moderate wild swings in economic conditions...
...At any other time, the paper's findings would have provoked a firestorm of controversy, not to mention glee among the IMF's many critics...
...In this respect the study is no different from the likely hundreds of academic papers produced on this subject every year...
...Although the paper's authors are careful to note that their intention is to "offer empirical evidence, not to derive a definitive set of policy implications," these findings should certainly prompt additional soul searching at the Fund's Washington headquarters...
...However," the IMF researchers conclude, "thus far these benefits of financial integration appear to have accrued primarily to industrial countries...
...However, a systematic examination of the evidence suggests that it is difficult to establish a strong, causal relationship...
...Certainly, a little humble pie would not be a bad thing for the Fund...
...It examines the increasing integration of global financial markets, that is, the growing movement of capital and investment flows across borders, and particularly the flow of capital from rich countries to poor ones...
...the ongoing train wreck in Argentina is but the more glaring example of the Fund's missteps...
...Countries that open up their borders to investment flows have often gotten low growth and financial instability in return...
...Already the institution has been severely chastened by its failures during the crisis-ridden 1990s, when Mexico, East Asia, Russia, and Brazil all experienced currency crises and massive IMF bailouts...
...Still, this one offers a startling and remarkable conclusion, considering the source: "[S]o far, it has proven difficult to find robust evidence in support of the proposition that financial integration helps developing countries to improve growth and to reduce macroeconomic volatility...
...In other words, if financial integration has a positive effect on growth, there is as yet no clear and robust empirical proof...
...In other words, developing nations want more trade, not less...
...Countless studies document the link between trade openness and economic growth, while leaders in developing countries chastise rich nations for maintaining barriers to trade, particularly in agriculture and textiles...
...Already, the London Daily Telegraph reports that "a spokesman [for the IMF] said the report should not [be] seen as an admission that the IMF itself had failed, but [he] admitted it was considering an overhaul of its practices...
...Unlike global financial markets, the benefits of open trade are relatively uncon-troversial...
...Although Stiglitz's policy prescriptions remain highly contestable, his charges of "market fundamentalism" against the IMF resonate more loudly following the Fund's recent admission...
...So, for all the low-income nations that dutifully pursued the Fund's policy prescriptions only to encounter currency crises or anemic economic performance, the IMF provides some consolation: Never mind...
...Indeed, when there is no proof, all that remains is blind faith...
...The world has had a few other things on its mind, after all...
...One of Stiglitz's more damning charges-that "the West has driven the globalization agenda, ensuring that it garners a disproportionate share of the benefits"-finds some backing in the IF study as well...
...Nevertheless, this IMF paper seems to vindicate at least some of Stiglitz's accusations against the Fund...
Vol. 130 • April 2003 • No. 7
