Globalisation of Capital Markets - Corporate Governance and Business Ethics

A major driver of the globalization phenomenon has proved the massive development of finance markets, and their increasing influence upon every other aspect of the economy:

Financial globalization, i. e. , the integration of more and more countries into the international financial system and the expansion of international markets for money, capital and foreign exchange, took off in the 1970s. From the 1980s on, the increase in cross-border holdings of assets outpaced the increase in international trade, and financial integration accelerated once more in the 1990s. In EMU, monetary integration boosted the integration of financial markets, which had begun under the single market programmer, even further.

The internationalization of finance was driven by technical advances, above all the decrease in the cost of communication and information processing as well as policy changes, in particular the spreading liberalization of cross-border financial flows plainly, trade integration (which is beneficial in itself) and financial integration reinforce each other in various ways. The past decade has also seen widespread improvements in macroeconomic and structural policies that may to some extent be linked to a disciplining effect of financial integration. Moreover, there is evidence that financial linkages have strengthened the transmission of cyclical impulses and shocks among industrial countries. Financial globalization is also likely to have helped financing the build-up of significant global current account imbalances. Finally, a great deal of the public and academic discussion has focused on the Series of financial crises in the 1990s, which has highlighted the potential effects of capital account liberalization on the volatility of growth and consumption. (European Commission 2005,

The complex explanation for this massive initialization of the world economy is pieced together by Ronald Do re thus:

  • Financial services take up an ever larger share of advertising, economic activity and highly skilled manpower.
  • Banks respond to the decline in loan business with a shift to earning fees for financial and investment services and own account trading . Shareholder value is preached as the sole legitimate objective and aspiration of corporations and executives.
  • Insistent and demanding calls for “level playing fields” from the World Trade Organization and Bank of International Settlements (BIS), with pressures for the further liberalization of financial markets, and greater international competition forcing international financial institutions and other corporations to work within the same parameters.

What is resulting from this insistent impulse of the increasingly dominant financial institutions are economies (and corporations) increasingly dependent upon financial markets:

Global integration and economic performance has been fostered by a new dynamic in financial markets, which both mirrors and amplifies the effects of foreign direct investment and trade driven integration. The economic performance of countries across the world is increasingly supported by and dependent on international capital flows, which have built on a process of progressive liberalization and advances in technology since the 1980s.

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