Financial globalization is today perhaps the most controversial issue within international economics. Most economists accept that the trade liberalization is beneficial thus the elimination of barriers to international trades in goods and services. But policy makers and academics are divided over the benefits of financial globalization. Those in favour of financial globalization often refer to the vibrant global capital market of 1870 to 1913 as evidence of potential benefits. They also point towards the growth of international financial markets in the last couple of decades and the menu of different assets that it provides to investors.
But, opponents of financial globalization argue that sudden capital flows in and out of the country can wreck domestic economies and their financial systems as happened in Indonesia where plummeting currency and massive capital flight led to huge riots. Opponents also claim that the global capital market allows the financial crisis in one country to ricochet to other countries. This happened most recently with the Asian financial crisis in 1997 which started in Thailand and spread not only to neighbouring countries such as Indonesia and Malaysia but also to far away countries such as South Korea, Brazil and Russia. These crises had devastating effects on the economies comparable to the great depression in the 1930s.
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