Can you resist financial globalization?

Yes you can, and Asia has been doing it.  I am in Bangkok for a Bank of Thailand conference, and among other interesting contributions (by Jose Antonio Ocampo, Raghu Rajan, and Arvind Subramanian) is a nice paper by the BIS's Robert McCauley and Guonan Ma called "Resisting financial globalization in Asia."  The paper documents how fours countries (China, India, South Korea, and Thailand) have thrown "sand in the wheels of finance" to varying extents. Interestingly, those countries that have done the most resisting are the ones that are the least affected by the crisis. 

The paper makes the following points in particular:

• Asian-style resistance to financial globalization has taken the form of limiting the role of foreign banks in the domestic banking system and of restricting cross-border arbitrage in foreign currency, money, bond and equity markets.
• Evidence from prices and quantities shows the most limited globalization in China, followed at a distance by India, followed in turn by Thailand and then Korea.
• The extent to which countries have been hit by the recent crisis follows this ranking (in reverse order) almost exactly. In particular, Korea has been the country hardest hit despite many other preventive policies (including large reserve build-up) before the onset of the turmoil.

The following chart, taken from Chinn and Ito's work, and using an entirely different data source (IMF indexes on capital account policies), shows the same broad trend for East and Southeast Asian countries:

 

Following the Asian financial crisis these countries experienced a reversal from their exceedingly high levels of international financial integration. As a result, they are now less globalized financially than Latin America by a wide margin.

And if you think all of this is just academic stuff which does not capture what is really going on on the ground, I would recommend a short conversation with the governor of Taiwan's central bank. You would quickly shed any doubts you may have harbored on the ability of determined policy to manage their capital accounts.

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