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Does Financial Openness Lead to Deeper Domestic Financial Markets?Advanced and emerging market economies
 have rapidly integrated into international capital markets
 and this growing globalization of financial markets has led
 to some important changes in the patterns of saving and
 investment across the world. The main goal of this paper is
 to test whether the cross-border asset trade has led to
 improvements in the intermediation of these savings -- that
 is, foster development of domestic financial markets. The
 authors have collected annual information on financial
 market development, financial openness, and other control
 variables for a sample of 145 countries for the period
 1974-2007. Controlling for the likely endogeneity of
 financial openness, the analysis finds that rising financial
 openness expands private credit, bank assets, and stock
 market and private bond market development, and generates
 efficiency gains in the banking system. However, the impact
 of financial openness on domestic financial development may
 depend on the level of institutional quality, the extent of
 investor protection, and the degree of trade openness. In
 general, rising financial openness will enlarge the size and
 activity of financial intermediaries, improve efficiency in
 the banking system, and contribute to deepen private bond
 markets in countries with moderate to high levels of
 institutional quality and investor protection as well as in
 countries with high trade openness.
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International Finance and Growth in Developing CountriesDespite an abundance of cross-section,
 panel, and event studies, there is strikingly little
 convincing documentation of direct positive impacts of
 financial opening on the economic welfare levels or growth
 rates of developing countries. The econometric difficulties
 are similar to those that bedevil the literature on trade
 openness and growth, though if anything, they are more
 severe in the context of international finance. There is
 also little systematic evidence that financial opening
 raises welfare indirectly by promoting collateral reforms of
 economic institutions or policies. At the same time, opening
 the financial account does appear to raise the frequency and
 severity of economic crises. Nonetheless, developing
 countries continue to move in the direction of further
 financial openness. A plausible explanation is that
 financial development is a concomitant of successful
 economic growth, and a growing financial sector in an
 economy open to trade cannot long be insulated from
 cross?border financial flows. This survey discusses the
 policy framework in which financial globalization is most
 likely to prove beneficial for developing countries. The
 reforms developing countries need to carry out to make their
 economies safe for international asset trade are the same
 reforms they need to carry out to curtail the power of
 entrenched economic interests and liberate the
 economy's productive potential.
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Globalized, Resilient, DynamicMany countries in the Latin America and
 the Caribbean (LAC) region, especially in South America,
 fared well during the global crisis and are now on a strong
 growth path. The region s recession in 2009 was relatively
 short lived and, with the notable exception of Mexico,
 remarkably mild. The current pace of economic recovery is
 exceeding expectations, with gross domestic product (GDP)
 projected to grow in the 5-6 percent range in 2010. This
 report discusses LAC's newfound resilience in the midst
 of financial globalization, examining key features of the
 cyclical behavior of LAC economies in comparison to other
 emerging economies and to its own past. Resilience is
 defined throughout this report in a broad sense to denote
 the ability of an economy to navigate with minimum
 disturbances through shocks, cushioning their negative
 spillovers in bad times, and recovering fast after a
 downturn. The report is structured as follows: first, it
 evaluates the relative performance of LAC countries during
 the contractionary period generated by the recent global
 crisis, to shed light on LAC's ability to shield its
 economies or soften the blow of a large external shock.
 Second, a similar exercise is conducted for the recovery
 phase of the cycle, when in the aftermath of an external
 shock more resilient countries will be expected to have a
 faster and more robust recovery. Third, it takes a deeper
 look at the different driving forces behind the recovery,
 including the role of domestic demand, commodity prices, and
 the connection to emerging Asia. Fourth, it provides
 evidence of the ability of different countries in LAC to
 conduct counter-cyclical policies in response to the global
 financial crisis. Lastly, a concluding section warns about
 the main macro-financial tensions and challenges lying ahead
 for the region.