Global Imbalances, Productivity Differentials and Financial Integration

Since the 1970s, financial crises have been a consistent feature of the international economy, warranting study by economists and political scientists alike. Economists have made great strides in their understanding of the dynamics of crises, with two potentially overlapping stories rising to the fore. Global crises appear to occur highly amid global imbalances—when some countries run large current account deficits and others, large surpluses. A second story emphasizes credit booms—financial institutions greatly extend access to credit, potentially leading to bubbles and subsequent crashes. Global imbalances are, in part, the product of politically contested processes. Imbalances would be impossible if states did not choose to liberalize (or not to liberalize) their capital accounts. Global political structures—whether international institutions seeking to govern financial flows, or hierarchies reflecting an economic power structure among states—also influence the ability of the global system to resolve global imbalances. Indeed, economists themselves are increasingly finding evidence that the international economy is not a flat system, but a network where some states play larger roles than others. Credit booms, too, and the regulatory structures that produce them, result from active choices by states. The expansion of the financial sector since the 1970s, however, took place amid a crucible of fire. Financial deregulation was the product of interest group knife-fights, states’ vying for position or adapting to technological change, and policy entrepreneurs’ seeking to enact their ideas. The IPE (international political economy) literature, too, must pay attention to post-2008 developments in economic thought. As financial integration pushes countries to adopt the monetary policies of the money center, the much-discussed monetary trilemma increasingly resembles a dilemma. Whereas economists once thought of expanded access to credit as “financial development,” they increasingly lament the preponderance of “financialized” economies. While the experimentalist turn in political science heralded a great search for cute natural experiments, economists are increasingly turning to the distant past to understand phenomena that have not been seen for some time. Political scientists might benefit from returning to the same grand theory questions, this time armed with more rigorous empirical techniques, and extensive data collected by economic historians.

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Financial Integration, Financial Development, and Global Imbalances

Journal of Political Economy ◽

10.1086/599706 ◽

2009 ◽

Vol 117 (3) ◽

pp. 371-416 ◽

Cited By ~ 316

Author(s):

Enrique G. Mendoza ◽

Vincenzo Quadrini ◽

José‐Víctor Ríos‐Rull

Keyword(s):

Financial Development ◽

Financial Integration ◽

Global Imbalances

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Financial Integration, Financial Deepness and Global Imbalances

10.3386/w12909 ◽

2007 ◽

Cited By ~ 84

Author(s):

Enrique Mendoza ◽

Vincenzo Quadrini ◽

Jose-Victor Rios-Rull

Keyword(s):

Financial Integration ◽

Global Imbalances

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Financial Integration, Entrepreneurial Risk and Global Imbalances

10.3386/w16761 ◽

2011 ◽

Cited By ~ 2

Author(s):

George-Marios Angeletos ◽

Vasia Panousi

Keyword(s):

Financial Integration ◽

Global Imbalances

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Financial integration, capital misallocation and global imbalances

Journal of International Money and Finance ◽

10.1016/j.jimonfin.2012.04.009 ◽

2013 ◽

Vol 32 ◽

pp. 324-340 ◽

Cited By ~ 8

Author(s):

Kenza Benhima

Keyword(s):

Financial Integration ◽

Global Imbalances ◽

Capital Misallocation

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Two Years after the Crisis: Do Risks of the Second Wave Become Stronger?

Voprosy Ekonomiki ◽

10.32609/0042-8736-2011-12-4-20 ◽

2011 ◽

pp. 4-20

Author(s):

M. Ershov

Keyword(s):

High Risk ◽

World Economy ◽

External Shocks ◽

Global Imbalances ◽

Russian Economy ◽

The World ◽

The Future ◽

Second Wave

With signs of normalization seemingly in place in the world economy, a number of problems show the possibility of aggravation in the future. The volume of derivatives in American banks grows significantly, high risk instruments are back in place and their use becomes more active, global imbalances increase. All of the above requires thorough approaches when creating mechanisms which can neutralize external shocks for the Russian economy and make it possible to develop in the new post-crisis environment.

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