Domestic institutions and the bypass effect of financial globalization
By: Jiandong Ju, Shang-Jin Wei.
Contributors: Wei, Shang-Jin.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13148.; Working paper series (National Bureau of Economic Research) -- working paper no. 13148.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 41
Subjects: Finance, Public; Corporate governance; Capital movements; Investments, Foreign; Globalization -- Economic aspects
Description: "This paper proposes a simple model to study the relationship between domestic institutions - financial system, corporate governance, and property rights protection - and patterns of international capital flows. It studies conditions under which financial globalization can be a substitute for reforms of domestic financial system. Inefficient financial system and poor corporate governance in a country may be completely bypassed by two-way capital flows in which domestic savings leave the country in the form of financial capital outflows but domestic investment takes place via inward foreign direct investment. While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector/poor corporate governance. However, the net effect for a developing country is more likely to be positive, the stronger its property rights protection. This is consistent with the observation that developed countries are often more enthusiastic about capital account liberalization around the world than many developing countries. A noteworthy feature of this theory is that financial and property rights institutions can have different effects on capital flows."--abstract.
Notes: "June 2007"

Includes bibliographical references (p. 35-37).

Also available in PDF from the NBER world wide web site (www.nber.org).