This article analyzes the benefits and costs of financial globalization. While most attention has been placed on the opportunity to obtain additional capital, the benefits from incorporating international norms are also highlighted. The article examines the trends in capital flows, both from public sector institutions and private investors, placing special emphasis on foreign direct investment and remittances. Major problems identified are the skewed distribution of foreign investment—not only among regions and countries, but also among types of firms—as well as its volatility. The article concludes with a set of policy recommendations to spread the benefits of foreign capital and to make it more productive.
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