"Friedman (2005) makes the case that globalization leads to a flat world....Assuredly, the world is not flat yet. Nevertheless, the metaphor is helpful....For many countries, the most significant explicit barriers to trade in financial assets have been knocked down. "And yet:
"Despite a dramatic increase in cross-border trade in financial assets, the positive impact of financial globalization has been surprisingly limited....In fact, over the recent past, capital has come rushing into the U.S., when one would expect it instead to flow to emerging countries. According to data from the IMF, the cumulative sum of net equity flows to less developed countries from 1996 to 2004 is a negative $67.4 billion."Why?
"[The] twin agency problems (see Stulz (2005)), poor corporate governance and high political risk, stand in the way of countries getting the full benefit of financial globalization."For instance:
"poor governance in Eastern Europe is accompanied, as expected, by high corporate ownership concentration, low firm valuation, poor financial development, and low foreign participation"VERY interesting paper! Read it yourself!
For the record, this is much like his previous work on governance and globalization which I HIGHLY recommend.