Benefits and risks of financial openness The benefits of free capital movements are well-known: efficient global allocation of resources; reduced cost of capital in capital-scarce countries; greater and more efficient investment; normalisation of consumption fluctuations in response to temporary shocks; international risk-sharing1; support for the transfer of technology and managerial knowhow; promotion of financial development and sound macroeconomic policies in recipient countries2.
Nevertheless, the extent to which countries can realise these benefits presupposes certain conditions3: a developed financial system; sound institutions; prudent macroeconomic policies and sufficient macroprudential supervision; Additionally, the benefits will depend on the level and composition of capital flows.