Together with the growth of deeper and broader markets for derivatives, these developments should lower the risk of cross-border investment, making a wider array of the world’s assets more attractive to international investors. Despite much progress, the process of global financial integration is far from complete. Though most direct barriers to international capital flows have been eliminated, numerous indirect barriers remain in place.
While a dazzling array of financial innovations has sprouted in recent decades, the inability of market participants to hedge, trade, or share certain risks, especially those related to cross-border investment, implies that financial markets still need further innovation and deepening. Such barriers to capital flows preserve home bias and impede the efficient distribution of global savings to the most productive investments.