In this context, the composition of flows has important implications for the likelihood of sudden stops and reversals.23Finally, countries participating in financial globalisation should have reached a certain level of institutional development in order to avoid costly boom-and-bust cycles.24 Overall, these considerations lead me to conclude that the case for real and financial integration is still strong but should be qualified.
At the same time, I believe that reducing real and financial integration via harsh protectionism is tantamount to destroying machines, as the Luddites did during the industrial revolution. In fact, outright protectionist measures have adverse side effects that reduce economies’ growth potential. Over time, these side effects may reduce welfare by more than the problems they seek to address.