Improvement in the financial infrastructure.

Financial globalization tends to improve the finan-

cial infrastructure. An improved financial sector

infrastructure means that borrowers and lenders

operate in a more transparent, competitive, and

efficient financial system. In this environment,

problems of asymmetric information are minimized

and credit is maximized.

In theory, there are different channels through

which financial globalization can lead to improve-

ments in the financial sector infrastructure. First,

financial globalization can lead to greater competition

in the provision of funds, which can generate effi-

ciency gains. Second, the adoption of international

accounting standards can increase transparency.

Third, the introduction of international financial

intermediaries would push the financial sector toward

the international frontier. Fourth, Stulz (1999) argues

that financial globalization improves corporate gov-

ernance; new shareholders and potential bidders

can lead to a closer monitoring of management.

Fifth, Crockett (2000) claims that the increase in

the technical capabilities for engaging in precision

financing results in a growing completeness of local

and global markets. Sixth, Stiglitz (2000) argues that

the stringent market discipline imposed by financial

globalization has consequences not only on the

macroeconomy but also on the business environment

and other institutional factors.

Financial Globalization