Globalization, defined as the increasingly free flow of ideas, people, goods, services, and capital that leads to the integration of economies and societies, has become a major force for global change, but much remains to be understood about the transmission channels and potential impacts. The developing countries commonly complain that the global system is a ‘creditor-run financial system’ and as such, maintaining the stability of the financial system is more important for the advanced countries than mitigating financial crisis in any particular country. As interdependence between the developed (North) and developing countries (South) becomes greater, the economic policies of the North will probably become more and more important for the South.
Key questions that are addressed in this paper are:
How has globalization transformed trade and financial linkages among G-7 countries and between North and South?
Through what (complex) mechanisms are these flows being transmitted?
What are the implications of these linkages and monetary policies of the North for capital flows between the North and the South?
Which economic policies of the North and South could trigger the next financial crises and why?
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