The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. We attempt to provide a unified conceptual framework for organizing this vast and growing literature. This framework allows us to provide a fresh synthetic perspective on the macroeconomic effects of financial globalization, both in terms of growth and volatility. Overall, our critical reading of the recent empirical literature is that it lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances. On the other hand, there is little systematic evidence to support widely-cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

Milesi-Ferretti, Assaf Razin and numerous other colleagues and seminar participants for comments and helpful discussions and to Sarma Jayanthi for research assistance. The views expressed herein are those of the authors and are not necessarily those of the IMF or the National Bureau of Economic Research.

Milesi-Ferretti, Assaf Razin and numerous other colleagues and seminar participants for comments and helpful discussions and to Sarma Jayanthi for research assistance. The views expressed herein are those of the authors and are not necessarily those of the IMF or the National Bureau of Economic Research.