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Abstract:
Financial globalization offers both risks and benefits for
countries of the semi-periphery orthe so-called "emerging
markets". Politics within the national space matters, yet
acquires a new meaning, in the age of financial globalization.
“Weak democracies" are characterized by limited
accountability and transparency of the state and other key
political institutions. Such democracies tend to suffer from
populist cycles, which result in low capacity to carry out
economic reform. Financial globalization, in turn, magnifies
populist cycles and renders their consequences more severe.
Hence "weak democracies" are confronted with the
predominantly negative side of financial globalization which
includes over-dependence on short-term capital flows,
speculative attacks and recurrent financial crises leading to
slow growth and a more regressive income distributional profile.
The relevance of these set of propositions are illustrated with
reference to the case of Turkey which, indeed, experienced
recurrent financial crises in the post-capital account
liberalization era with costly consequences for the real economy.
Two general conclusions follow. Firstly, there is a need to
strengthen democracy in the developing world. Secondly, since
this is hard to accomplish over a short space of time serious
question marks are raised concerning the desirability of early
exposure to financial globalization given the current state of
the world.
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