Financialization in Emerging Economies

Financialization in emerging economies refers to the growing dominance of financial markets, institutions and instruments in shaping economic activity, policy and social outcomes. As capital flows have surged into these markets, domestic firms and states increasingly rely on financial channels for growth, often at the expense of productive investment. This transformation has been driven by liberalisation of capital accounts, the proliferation of credit and the expansion of local capital markets. While greater access to global finance can lower borrowing costs and enable infrastructure development, it also introduces vulnerability to sudden stops, currency mismatches and cyclical volatility. State actors in many emerging economies seek to mediate these risks through macroprudential measures and targeted industrial policies, yet they face constraints imposed by external debt burdens, exchange-rate pressures and hierarchical currency regimes. Contemporary research highlights the variegated nature of financialization across regions: outcomes depend on institutional capacity, the structure of domestic banking sectors, and the interplay between geopolitical strategies and global investors. Understanding these dynamics is essential to assess policy space, balance stability with growth, and foster inclusive development in a world of interconnected financial landscapes.

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Financialization in Emerging Economies publication trend

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Technical terms

Financialization: The increasing influence of financial markets and motives on economies, shaping corporate strategy, asset allocation and policy decisions.

Capital account liberalisation: The removal of restrictions on cross-border movements of capital, facilitating direct and portfolio investments between domestic and foreign investors.

Real exchange rate: The nominal exchange rate adjusted for relative price levels, reflecting a country’s external competitiveness.

Macroprudential policy: Regulatory measures designed to mitigate systemic risks in the financial system, such as capital buffers and liquidity requirements.

References

1. China’s rise, weaponised interdependence and the increasingly contested geographies of global finance. Finance and Space (2024).
2. Financial integration, productive development and fiscal policy space in developing countries. Structural Change and Economic Dynamics (2023).
3. East Asia and the politics of global finance: a developmental challenge to the neoliberal consensus?. Review of International Political Economy (2023).
4. Global currency hierarchy and national policy space: a framework for peripheral economies. European Journal of Economics and Economic Policies Intervention (2018).