In the late 1980s and the early 1990s, developing countries, too, began to open up. In theory, greater international capital flows should bring important benefits. Savings and investment are allocated more efficiently. Poor countries, with large investment needs, are no longer hamstrung by a lack of capital. Savers are not confined to their home market, but can seek investment opportunities that offer the highest returns around the world.
Risk is diversified as investors can spread their portfolios more widely.
Yet in many eyes, the integration of financial markets is dangerous and destabilising. Bond traders and currency speculators have supposedly supplanted political leaders in determining macroeconomic policy. Financial markets are said to be more volatile as money moves across borders with a mere computer keystroke. Such extremes of optimism and pessimism are both misplaced. For, despite all the hyperbole, a global capital market does not yet exist.