THE UNIVERSITY OF DA NANG
UNIVERSITY OF ECONNOMICS REPORT
Discuss some of the manifestations of the globalization of world capital market
COURSE: FINANCIAL MARKETS AND INSTITUTIONS GROUP: TRƯƠNG THỊ PHƯƠNG NHI ĐỖ MINH HẰNG ĐẶNG PHƯƠNG NGA Da Nang, May 2023 Table of Contents I.
Introduction:.............................................................................................................. 2 II.
Overview:................................................................................................................2
III. Integration of Financial Markets:..........................................................................3
3.1. Free flow of capital across borders:...................................................................4
3.2. Advancements in technology facilitating market integration:........................5 IV.
Cross-Border Investment:.......................................................................................6
4.1. Motivations for cross-border investment..........................................................6
4.2. Growth of international investment funds........................................................7 V.
Rise of Multinational Corporations........................................................................8
5.1. The role of globalization of world capital markets in the development of
multinational corporations...........................................................................................8
5.2. Some problems of globalization of world capital markets affect
multinational corporations...........................................................................................9
VI. Increased Capital Mobility....................................................................................10
6.1. Ease of capital movement across countries.....................................................10
6.2. Impact of capital mobility on financial stability.............................................10
VII. Regulatory Framework and Governance.............................................................11
VIII. Implications for Emerging Economies.............................................................12 IX.
Conclusion:...........................................................................................................14 I. Introduction:
The globalization of the world capital market refers to the increasing interconnectedness
and integration of financial markets worldwide. It involves the flow of capital across
borders, the integration of financial systems, and the interdependence of economies on a global scale. II. Overview:
In the I section, we will provide a comprehensive definition of the globalization of world capital market.
The III section will focus on the integration of financial markets, examining the
mechanisms that have facilitated the free flow of capital across borders. Advancements in
technology, such as electronic trading platforms and global communication networks, have
played a pivotal role in enhancing market integration and expanding investment opportunities.
Moving forward, the IV section will explore cross-border investment, shedding light on the
motivations behind it and the growth of international investment funds. Cross-border
investment has become increasingly prevalent as investors seek to diversify their
portfolios, capitalize on emerging markets, and tap into new sources of growth.
The V section will investigate the rise of multinational corporations and their symbiotic
relationship with the globalization of world capital markets. We will examine how the
expansion and integration of financial markets have fueled the development of
multinational corporations, enabling them to access global capital, expand their operations,
and compete on a global scale. However, we will also highlight some of the problems that
arise from the globalization of world capital markets, which can impact multinational corporations.
In the VI section, we will delve into the increased capital mobility that accompanies the
globalization of world capital markets. We will explore the ease of capital movement across
countries and its implications for financial stability, including the potential risks and
benefits associated with such mobility.
The VII section will focus on the implications of globalization of world capital markets for
emerging economies. We will analyze how these economies navigate the challenges and
opportunities presented by increased capital flows and market integration, and examine the
strategies they adopt to attract investments and promote economic growth.
Finally, in the VII section, a report will be about an exploration of the regulatory framework
and governance surrounding the globalization of world capital markets. We will discuss
the role of international organizations and national regulators in ensuring market
efficiency, stability, and fairness in the face of rapid global financial integration. III.
Integration of Financial Markets:
The integration of financial markets is a process whereby national financial markets are
interconnected and interdependent, leading to the creation of a global financial market.
This process is a manifestation of the globalization of world capital markets, which has
been driven by advancements in technology, changes in regulation, and the liberalization of financial markets.
In fact, The contemporary world is dominated by the idea of globalization, whose
implications affect our lives in many aspects. In some way, it seems clear that the World
has become much more interrelated and even more uniform than it was in the past. Of
course, important exceptions still remain, but if we look at the Western World, we observe
that differences between countries and markets are progressively mitigated. (Bentes, 2015)
The integration of financial markets has led to greater efficiency and liquidity in the global
financial system. Investors can now easily access a wide range of financial instruments,
such as stocks, bonds, and derivatives, from markets all over the world. This has increased
competition among market participants, leading to lower transaction costs and greater price transparency.
However, the integration of financial markets also poses risks. For example, financial crises
in one country can quickly spread to other countries, leading to contagion effects that can
destabilize the global financial system.The integration of financial markets has also raised
concerns about the concentration of financial power in the hands of a few large institutions.
Some argue that the dominance of large financial institutions can lead to market distortions and systemic risks. III.1.
Free flow of capital across borders:
The free flow of capital across borders refers to the unrestricted movement of money and
financial assets between countries. It is a concept closely related to globalization and the
increasing interconnectedness of economies around the world.In a system of free flow of
capital, there are minimal or no restrictions on the movement of money between countries.
Investors can buy and sell financial assets, such as stocks, bonds, and currencies, without
facing barriers such as capital controls or trade restrictions. Here are some of the
manifestations of this phenomenon.
Foreign Direct Investment (FDI):
Foreign direct investment is a key manifestation of the globalization of the world capital
market. It involves the cross-border investment in productive assets, such as infrastructure,
factories, and technology. FDI has become increasingly common as countries liberalize
their investment policies and remove barriers to capital inflows. This has led to the
emergence of multinational corporations (MNCs) that operate across multiple countries,
driving economic growth, creating jobs, and fostering technology transfer. Portfolio Investment:
The globalization of the world capital market has facilitated the growth of portfolio
investment. Portfolio investment refers to the purchase of stocks, bonds, and other financial
assets in foreign markets. Investors now have the ability to diversify their portfolios across
countries, taking advantage of different growth prospects, interest rates, and risk profiles.
This has led to increased liquidity, greater market efficiency, and improved access to
capital for both governments and corporations.
Rise of Global Financial Institutions:
The globalization of the world capital market has given rise to global financial institutions
that play a significant role in facilitating cross-border capital flows. Institutions such as the
International Monetary Fund (IMF), World Bank, and regional development banks provide
financial assistance, policy advice, and technical support to countries around the world.
These institutions promote financial stability, facilitate economic development, and help manage financial crises.
Capital Mobility and Financial Contagion:
The free flow of capital across borders has led to increased capital mobility, allowing
investors to quickly move their funds in response to changing market conditions. While
this enhances market efficiency, it also exposes economies to the risk of financial
contagion. Financial crises in one country can quickly spread to others through
interconnected financial markets, highlighting the importance of sound regulation, risk
management, and international cooperation. III.2.
Advancements in technology facilitating market integration:
The globalization of world capital markets has been accelerated and facilitated by
advancements in technology. These technological developments have revolutionized the
financial landscape, enabling seamless integration and connectivity among markets globally. Electronic Trading Platforms:
One of the significant manifestations of technology-driven globalization is the emergence
of electronic trading platforms. These platforms provide efficient and instantaneous access
to financial markets, allowing investors to buy and sell securities electronically. With the
rise of the internet and high-speed communication networks, electronic trading platforms
have enabled market participants to trade in real-time, regardless of their physical location.
This has greatly increased market liquidity and efficiency, while reducing transaction costs. Algorithmic Trading:
Algorithmic trading is another manifestation of technological advancements in the
globalization of world capital markets. It involves the use of computer algorithms to
automate the execution of trading strategies. Algorithmic trading algorithms analyze vast
amounts of data and execute trades based on predetermined criteria, such as price
differentials, market trends, or statistical patterns. This technology has enhanced market
efficiency, reduced human errors, and increased trade execution speed. Online Investment Platforms:
The advent of online investment platforms has democratized access to capital markets.
These platforms allow individuals to invest directly in various financial instruments, such
as stocks, bonds, and mutual funds, without the need for traditional intermediaries. Online
investment platforms offer user-friendly interfaces, educational resources, and low-cost
trading options, enabling individuals from around the world to participate in the global
capital market. This has opened up investment opportunities and facilitated portfolio
diversification for retail investors. IV.
Cross-Border Investment:
Cross-border investment refers to the flow of capital from one country to another for the
purpose of acquiring assets, establishing operations, or participating in financial markets.
It involves various forms of investment, such as foreign direct investment (FDI), portfolio
investment, and cross-border mergers and acquisitions. Cross-border investment is a
significant manifestation of the globalization of world capital markets, as it promotes
economic integration, facilitates capital allocation, and drives international business activities. IV.1.
Motivations for cross-border investment
One of the key questions in international business is why firms engage in FDI “classic”
taxonomy of FDI motives is the four-way classification advanced by John Dunning
(Dunning, 1993 and Dunning and Lundan, 2008). Dunning’s framework groups FDI
motives into four broad categories. Natural resource seekers invest abroad to acquire
specific resources that do not exist, or exist but at higher costs, in their home country. These
resources range from physical ones, like oil and gas, to unskilled and semi-skilled labor
and also technological and managerial capabilities. Market seekers invest overseas to
supply goods or services to new markets or to the ones they previously served through
exports. Efficiency seekers are driven by the need to rationalize and gain from common
governance of geographically dispersed activities through economies of scale and scope or
through the benefits of different factor endowments in different countries. Unlike the
previous three types of FDI, the motive for strategic asset seekers is less to exploit the
advantages firms already possess, but to augment existing or to obtain new ones that
contribute to long-term competitiveness. The four-way classification has been most widely
adopted as a framework to differentiate types of FDI activities. (Pananond, 2015)
Moreover, Dunning's framework acknowledges that firms may have multiple motives for
engaging in foreign direct investment (FDI), and these motives may evolve over time as
market conditions change. Firms may exhibit a combination of motives from different
categories, depending on their strategic objectives and the specific opportunities presented by the target market
Natural Resource Seekers: Firms in this category invest abroad to acquire specific
resources that are either scarce or more expensive in their home country.
Market Seekers: Market-seeking firms invest overseas to supply goods or services to new
markets or expand their reach beyond their domestic customer base. This motive is often
driven by the potential for market growth, increasing market share, and accessing new customer segments.
Efficiency Seekers: Efficiency-seeking firms engage in FDI to rationalize their operations
and achieve economies of scale, scope, or cost advantages.
Strategic Asset Seekers: Strategic asset-seeking firms focus on acquiring or augmenting
strategic assets that contribute to long-term competitiveness. These assets can include
intellectual property, brand equity, research and development capabilities, distribution
networks, or access to new technologies. IV.2.
Growth of international investment funds
The growth of international investment funds has been a significant trend in the global
financial markets in recent years. These funds, also known as global or international mutual
funds, are investment vehicles that allow individuals and institutions to invest in a
diversified portfolio of securities from different countries.There are several factors driving
the continued growth of international investment funds:
Economic growth in emerging markets: Emerging markets such as China, India, and Brazil
continue to experience strong economic growth, creating investment opportunities for
international investors seeking exposure to these markets.
Low-interest rates in developed markets: Low-interest rates in developed markets have
pushed investors to seek higher returns in other parts of the world, leading to increased
demand for international investment funds.
Globalization: The increasing interconnectedness of economies and markets around the
world has created more opportunities for investors to invest in international markets.
Technology advancements: Technology has made it easier for investors to access and
invest in international markets, leading to increased demand for international investment funds.
However, the growth of international investment funds also presents challenges. Investing
in international markets involves currency risk, political and regulatory risks, and
differences in accounting standards and legal systems. In addition, fluctuations in exchange
rates can affect returns, and the fees charged by international investment funds can be
higher than those charged by domestic funds. V.
Rise of Multinational Corporations
The rise of multinational corporations (MNCs) has been a significant phenomenon in the
global business landscape. MNCs are companies that have business operations in at least
one country other than their home country. They play a crucial role in the modern economy,
accounting for substantial portions of world production, employment, investment, trade,
and research and development (R&D) .
The rise of multinational corporations has transformed the global business landscape. They
have become major players in international trade, investment, and innovation, shaping
economies and societies around the world.
V.1. The role of globalization of world capital markets in the development
of multinational corporations
The role of globalization of world capital markets in the development of multinational
corporations is significant and multifaceted . As highlighted in the Harvard Business
Review article, globalization has enabled MNCs to expand their operations beyond their
home countries, access new markets, and tap into resources and talent (Altman,2021).The
integration of international capital markets has made it easier for firms to access capital
outside of their home countries, facilitating the expansion and global reach of MNCs.
The development of MNCs is closely intertwined with foreign direct investment (FDI),
which is a key driver of globalization. MNCs utilize FDI to establish subsidiaries, acquire
existing firms, and form strategic alliances in foreign markets, enabling them to penetrate
new markets, gain access to resources, and benefit from economies of scale and scope. The
globalization of world capital markets has facilitated cross-border investments, making it
easier for MNCs to finance their expansion and pursue strategic opportunities
globally.(Filatotchev et al., 2016)
Furthermore, the integration of international capital markets has led to the integration of
global value chains, a critical factor in the development of MNCs. MNCs have leveraged
their global operations to establish production facilities, coordinate activities across
different countries, and optimize their supply chains. This has enabled them to benefit from
cost advantages, access diverse markets, and enhance operational efficiency.
In summary, the globalization of world capital markets has provided opportunities for
MNCs to expand their operations globally, access new markets, benefit from economies of
scale, and leverage resources and talent from different countries. The integration of
international capital markets has facilitated cross-border investments, the establishment of
global value chains, knowledge exchange, and the adoption of responsible business practices.
V.2. Some problems of globalization of world capital markets affect
multinational corporations
The COVID-19 pandemic had significant effects on global capital markets and,
consequently, on MNCs. Cross-border investment flows were severely affected, with
record amounts of portfolio capital being withdrawn from emerging markets initially but
stabilizing and rallying later in 2020. The pandemic also had contrasting impacts on
different types of flows, with a decline in personal mobility and a surge in digital flows as
work, play, and education shifted online
The pandemic-induced economic and health crises had a noticeable impact on MNCs. A
study analyzing stock price reactions of MNCs and purely domestic companies during the
crisis found that, on average, MNCs suffered a significantly larger decline in firm value
compared to domestic companies (Guedhami et al., 2022). This suggests that MNCs faced
additional challenges due to their global operations and exposure to multiple markets.
Furthermore, the globalization of world capital markets has raised concerns and challenges
for MNCs. One of the problems is the risk of financial contagion. Financial crises in one
country can quickly spread to other countries, impacting the operations and financial
stability of MNCs with global reach. Moreover, the concentration of financial power in the
hands of a few large institutions, resulting from the integration of financial markets, can
lead to market distortions and systemic risks, affecting the business environment for MNCs.
In conclusion, the globalization of world capital markets has brought both advantages and
challenges for multinational corporations. While it has provided opportunities for MNCs
to expand their operations globally and access resources, it has also exposed them to risks
such as financial contagion and market concentration. The COVID-19 pandemic further
highlighted the vulnerabilities and complexities that MNCs face in a globalized world. VI.
Increased Capital Mobility
Increased capital mobility refers to the ease with which financial capital can flow across
national borders. It implies that countries have fewer restrictions on capital movements,
allowing investors to allocate their funds more freely in search of higher returns and opportunities. VI.1.
Ease of capital movement across countries
Increased capital mobility refers to the ease with which financial capital can flow across
national borders. It implies that countries have fewer restrictions on capital movements,
allowing investors to allocate their funds more freely in search of higher returns and
opportunities. This phenomenon has both benefits and potential drawbacks.
One significant effect of increased capital mobility is the heightened financial integration
with the rest of the world. As countries open up their economies to global capital flows,
they become more interconnected with international financial markets ]. This integration
can bring various advantages, such as access to diverse sources of financing, increased
investment opportunities, and the potential for economic growth. It allows countries to tap
into global savings, attract foreign direct investment, and facilitate the transfer of
knowledge and technology across borders.
However, there are also potential risks associated with increased capital mobility. One such
risk is the exposure to global shocks, which can make countries more susceptible to
financial crises. When a shock or financial instability occurs in one part of the world, it can
quickly transmit to other countries through the interconnected financial system. This
transmission can lead to increased volatility and the rapid spread of financial contagion. VI.2.
Impact of capital mobility on financial stability
The impact of capital mobility on financial stability has been a subject of considerable
debate and analysis . While capital mobility can bring benefits such as increased liquidity,
diversification of investment opportunities, and access to foreign capital, it can also pose risks to financial stability.
Some studies suggest that excessive capital mobility, particularly in the form of large and
volatile capital flows, can contribute to financial fragility and increase the vulnerability of
economies to financial crises. Rapid capital inflows, for instance, can lead to asset price
bubbles, excessive credit expansion, and overvaluation of domestic currencies. When these
conditions are not adequately managed, they can create vulnerabilities in financial systems.
To mitigate the potential risks associated with capital mobility, policymakers have
implemented various measures, including capital controls. Capital controls involve
imposing restrictions or regulations on capital flows, either inflows or outflows, to manage
the impact on the domestic economy. These controls can take different forms, such as taxes
on capital inflows or outflows, transaction fees, reserve requirements, or restrictions on foreign exchange operations.
VII. Regulatory Framework and Governance
The regulatory framework and governance of the global capital market have undergone
significant changes in response to the increasing globalization of financial activities. These
changes have been driven by the need to promote financial stability, mitigate systemic
risks, and enhance transparency and investor protection. Various global regulatory
initiatives have been implemented, involving international regulatory bodies, national
regulatory authorities, cross-border cooperation, international standards and guidelines,
and the adaptation to technological advancements and innovation.
International regulatory bodies, including the International Monetary Fund (IMF), the
World Bank, the Financial Stability Board (FSB), and the Basel Committee on Banking
Supervision, play crucial roles in the global regulatory landscape. They set international
standards, promote financial stability, and coordinate regulatory efforts among countries.
These organizations conduct research, issue reports and recommendations, and provide
technical assistance to support the development and implementation of effective regulatory frameworks.
At the national level, each country has its own regulatory authorities responsible for
overseeing and regulating capital markets within their jurisdictions. These authorities
establish rules and regulations to ensure fair and transparent market practices, protect
investors, and maintain market integrity. They conduct market surveillance, supervise
financial institutions, enforce compliance, and take enforcement actions when necessary.
Recognizing the cross-border nature of financial activities, regulatory authorities have
increased their efforts to cooperate and coordinate across jurisdictions. Cross-border
regulatory cooperation involves the exchange of information, collaborative policy
development, and working towards harmonizing regulatory frameworks. This
collaboration aims to address challenges posed by globalization, such as the
interconnectedness of financial institutions and the potential spillover effects of financial crises.
International standards and guidelines have been developed by regulatory bodies and
standard-setting organizations to promote consistent regulatory practices and enhance the
resilience of the global financial system. For example, the Basel Accords provide a
framework for banking regulation, addressing areas such as capital adequacy, liquidity risk,
and risk-based supervision. International Financial Reporting Standards (IFRS) ensure
transparency and comparability in financial reporting, while the Principles for
Financial Market Infrastructures (PFMI) establish guidelines for the regulation of market infrastructure.
The regulatory framework and governance also adapt to technological advancements and
innovation in the financial sector. Regulators monitor and address risks associated with
technologies such as blockchain, cryptocurrencies, high-frequency trading, and digital
platforms. They strike a balance between fostering innovation and ensuring the stability,
security, and integrity of the financial system by developing specific regulations and
guidelines for these emerging technologies.
It's important to note that the specific regulatory framework and governance structures can
vary across countries and regions. While efforts have been made to enhance international
coordination and harmonization, regulatory frameworks are still predominantly established
at the national level, reflecting the diversity of legal systems, market structures, and
regulatory approaches around the world. However, ongoing collaboration and coordination
among international regulatory bodies and national authorities continue to contribute to the
evolution and improvement of the regulatory framework and governance of the global capital market.
VIII. Implications for Emerging Economies
The globalization of the world capital market occurred over a span of several decades,
starting in the mid-20th century and accelerating significantly in the late 20th century and
early 21st century. This process had a profound impact on the global economy,
transforming the way capital is allocated and invested worldwide.
The timeline of the globalization of the capital market can be traced back to the postWorld
War II reconstruction period. After the war, countries sought external investment and
assistance to rebuild their economies. The establishment of institutions like the
International Monetary Fund (IMF) and the World Bank provided funding and frameworks
for international financial cooperation, laying the foundation for increased capital flows across borders.
The 1970s and 1980s marked a significant turning point with the rise of financial
liberalization and deregulation. Many countries embarked on economic reforms, including
the removal of capital controls and the liberalization of financial markets. This created a
more open and integrated global financial system, enabling the free flow of capital across
borders. Stock exchanges were opened up to foreign investors, attracting capital from
around the world and facilitating the globalization of the capital market.
Technological advancements played a crucial role in accelerating the globalization of the
capital market. The development of computer technology and telecommunications enabled
the creation of electronic trading platforms, interbank networks, and informationsharing
systems. These technological innovations greatly enhanced the speed, efficiency, and
accessibility of capital flows, allowing investors to access global markets and allocate capital with greater ease.
Trade liberalization and economic integration also contributed to the globalization of the
capital market. Agreements such as the General Agreement on Tariffs and Trade (GATT)
and subsequent trade agreements aimed to reduce trade barriers and promote economic
cooperation among nations. As countries embraced trade liberalization, emerging
economies with growing consumer markets and favorable business environments became
attractive investment destinations. This led to an increase in cross-border capital flows and investment opportunities.
The impact of the globalization of the world capital market on economies has been
significant. Emerging economies gained access to a larger pool of global investors,
allowing them to attract much-needed capital for investment in infrastructure,
industrialization, and economic development. Foreign direct investment (FDI) played a
crucial role in these economies, bringing in capital, technology, expertise, and access to
new markets. This, in turn, stimulated economic growth, created employment
opportunities, and fueled domestic consumption.
However, the globalization of the capital market also posed challenges for economies.
Emerging economies had to navigate issues such as corruption, regulatory complexities,
and macroeconomic stability to effectively attract and retain capital. It required the
implementation of investor-friendly policies, improvements in governance structures, and
investments in human capital to build sustainable and resilient economies. IX. Conclusion:
The globalization of world capital markets has transformed the global financial landscape,
bringing opportunities and challenges. Integration of financial markets and increased cross-
border investment have opened up new avenues for diversification and growth. However,
challenges such as competition and regulatory complexities have emerged.Capital mobility
has improved liquidity but also increased the risk of financial instability. Effective
regulation and supervision are crucial to maintain stability.Emerging economies have
leveraged globalization while addressing vulnerabilities.A robust regulatory framework
and governance are essential for managing global capital markets.
In conclusion, the globalization of world capital markets has reshaped finance globally,
offering opportunities and challenges. Adapting to these changes and implementing
strategies for sustainable growth are vital. By doing so, we can harness the benefits and
build a resilient global economy. X. Reference lists:
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Pananond, P. (2015). Motives for foreign direct investment: a view from emerging marke
multinationals. The Multinational Business Review, 23(1), 77–86.
https://doi.org/10.1108/mbr-02-2015-0008
Altman, S. A. (2021, March 18). The State of Globalization in 2021. Harvard Business
Review. https://hbr.org/2021/03/the-state-of-globalization-in-2021
Filatotchev, I., Bell, R. G., & Rasheed, A. A. (2016). Globalization of Capital Markets:
Implications for Firm Strategies. Journal of International Management, 22(3), 211–221.
https://doi.org/10.1016/j.intman.2016.04.001
Guedhami, O., Knill, A. M., Megginson, W. L., & Senbet, L. W. (2022). The dark side of
globalization: Evidence from the impact of COVID-19 on multinational companies. Journal
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