Globalization and financial liberalization Much as the “Great Moderation” has highlighted the benefits of globalization, the recent global turmoil has also highlighted its challenges. There is no question that freer trade in financial products and services confers significant benefits – direct as well as collateral ones – to those countries that are prepared for it.
These benefits come in the form of – among other things – portfolio diversification, greater access to foreign exchange, financial depth and technological transfers. At the same time, however, global financial integration has also enabled the cross-border trading of complex and potentially risky financial assets. It also brings about the possibility of sudden stops in capital flows in times of market stress.