Here is a new paper by Ayhan Kose, Eswar Prasad, and Marco Terrones that provides the strongest evidence to date that financial globalization has not provided better risk-sharing for emerging market economies. In the authors' words:
Our main conclusion is that, notwithstanding the prediction of conventional theoretical models that financial globalization should foster increased risk sharing across all countries, there is no evidence that this is true for developing countries. Even for the group of emerging market economies—which have become far more integrated into global markets than other developing countries—financial globalization has not improved the degree of risk sharing. For advanced industrial economies, there is indeed some evidence that risk sharing has improved in the last decade and a half. Our formal econometric analysis confirms that
increased financial openness improves risk sharing among industrial economies, but this effect is absent for the other two groups of countries.
If anything, the authors detailed results suggest a decline in risk-sharing in developing countries during the recent period of financial globalization, despite a huge increase in gross financial flows.
Why? The authors speculate that maybe it has to do with developing countries' reliance on forms of external finance which do not do a great job of providing insurance or with the boom-and-bust cycles that financial globalization has sometimes stimulated.
The bottom line?
One interpretation of our results is that there is a threshold effect in terms of how financial globalization improves risk sharing, in that only countries that are substantially integrated into global markets (in de facto terms) appear to attain these benefits.
Note the caveat, "in de facto terms." In other words, there is a there there, and you get there when you get there.