Working Paper: CEPR ID: DP16375
Authors: Maurice Obstfeld
Abstract: While the globalization of production has been a prominent target of anti-globalization backlash, globalized finance has seemed to be much less in the public bull’s-eye. The blueprint for the postwar international economy agreed at Bretton Woods in 1944 envisioned nothing like today’s extensive and fluid global capital market. The demise of the 1946-1973 fixed exchange rate system, however, also brought a progressive dismantling of barriers to international financial flows motivated by special-interest politics, national economic competition, and ideology – alongside the benign desire for a more efficient international allocation of capital. Unfortunately, free cross-border financial capital mobility can compromise governments’ capacities to attain domestic economic and social goals in several ways. This essay links the dynamics of financial liberalization to the Teflon-like resilience of finance to backlash so far, and suggests that stronger backlash could emerge if national governments fail to enhance multilateral cooperation to manage the financial commons.
Keywords: global capital market; embedded liberalism; financial stability; globalization; multilateralism
JEL Codes: E52; F02; F21; F30; F65; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial liberalization (F30) | increased cross-border financial flows (F65) |
| increased cross-border financial flows (F65) | compromised domestic economic goals (F52) |
| compromised domestic economic goals (F52) | negative effect on financial stability (F65) |
| political clout of the finance industry (G18) | influences government policy (H10) |
| increased financial influence (F65) | deregulation (L51) |
| resilience of financial globalization (F65) | backlash against production globalization (F61) |
| political dynamics (D72) | resilience of financial globalization (F65) |
| concentrated interests of financial service exporters (F30) | prevail over dispersed interests affected by financial instability (G18) |
| interplay of policy trade-offs, political clout, and ideological shifts (D72) | financial liberalization (F30) |
| increased financial globalization (F65) | challenges to national policymakers (H59) |