Question

Why might emerging market economies want to implement financial liberalization and globalization gradually rather than all at once?

Answer 1

Firstly, implementing financial liberalization and globalization require a lot of adjustments in the emerging markets. For example, globalization and liberalization negatively affect various domestic industries. Therefore, these countries need enough time to absorb these shocks caused to these industries and reorient the industries. Secondly, financial liberalization causes fluctuations in the financial markets of the emerging markets. Thirdly, emerging markets need to build institutions, regulatory bodies, market observers, etc. and put an appropriate regulatory environment to ensure the market functions properly. Setting up these institutions and regulatory bodies need sufficient time. Gradual implementation of liberalization and globalization helps emerging market adjust to the changes and take appropriate steps to absorb the shocks.