Commentary: How Should Monetary Policymakers React to the New Challenges of Global Economic Integration

The potential benefits from globalization for developing countries are large. Greater real sector integration leads to higher welfare and growth due to a better allocation of resources, a greater specialization of production, and the transfer of technology through FDI flows. Financial integration provides the resources to take advantage of these new investment opportunities brought about by globalization, as well as by the structural changes that have been undertaken in several emerging markets.3 In addition, the greater supply of foreign capital allows emerging economies to smooth consumption when confronted with transitory shocks.