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The international finance can influence the macroeconomic dynamics in Emerging Markets and Developing Economies (EMDEs) by several transmissions mechanisms. However, these channels have changed in terms of intensity and relevance in the last two decades. The advance of financialization process and the financial globalization as well as the deepening financial integration in those countries has transformed the channels between international finance and macroeconomic dynamics in EMDEs. The traditional forms of external vulnerability have been reduced because of the diminished of external debt in foreign currency, the changes in the external liabilities and reserve accumulation in foreign currency. On the other side, the increasing participation of foreign investors in the domestic asset markets and the presence of foreign banks have created/deepening new transmission mechanisms.
The influence of international finance in macroeconomic dynamics in EMDEs is a specific form of manifestations of financialization phenomenon. Due to the association of the processes of financialization and financial globalization in the EMDEs, the changes in international liquidity becomes a central element to understand the macroeconomic dynamics of these countries, especially those with deep external financial integration. In the first level, the changes in international liquidity influences the asset pricing, such as exchange rate, stock market and real assets prices (commodities, land and houses) and the domestic credit. In a second derivation, the changes in asset prices and internal and external financing impacts in the aggregated demand, trough consumption, investment, governmental spending and exports.
The main aim of this paper is describing the new transmission mechanisms between the international finance and the macroeconomic dynamics in EMDEs considering the process of financialization and the financial globalization in EMDEs, highlighting the particularities from EMDEs and their differences from advanced economies, and the deepening financial integration. Once the global financial cycle is the main driver of international liquidity cycle for EMDE and an important component of commodity prices in the international markets, the international finance becomes a driver of domestic growth cycles in EMDEs. In methodological terms, the research will focus on post-Keynesian macroeconomic view and the Latin America Structuralism School.
The paper has three main parts. The first one discusses the financialization and financial globalization process in EMDEs. In the second part describes the changes in the financial integration in EMDEs in the last two decades. The third one presents the channels or transmission mechanisms between the international finance and the macroeconomic dynamics in EMDEs in a theoretical way. The contributions of this paper are: (i) present the financialization process in two senses: the particularities of EMDEs and their influence in economic growth in the short (cyclical)-run; (ii) discuss the financial globalization in EMDEs considering the global financial cycles and the new financial integration in EMDEs; (iii) most relevant, describe the new channels between the international finance and the EMDEs.
