The severity of the 2007-2009 financial crisis, just like the emerging market crises of the 1990s, has raised the question as to whether modern liberalized financial markets are more of a curse than a blessing. In theory, liberalized financial markets should allow efficient risk - sharing. Some research works have shown that financial integration leads to a lower degree of business cycle synchronization. It is also argued that proximity to major international financial centers seems to reduce business cycle volatility. But many find that theoretical predictions of risk-sharing benefits are not supported by the data.
Modern liberalized markets are products of the ever increasing level of integration in a globalized world. Finanial liberalization is a fulcrum for local financial economies to get integrated into the global economy and have access to global capital flows. But from the Pareto principle, there are usually always gainers and loosers. Further more, gainers are usually few, and loosers more. Lessons from the Global meltdown "as it was christened" shows and attest to this hypothesis. The reason being that liberalization lets down the guards of nations (especially developing countries) in anticipation of foreign investment flows allowing virtually no restriction in the inflow and outflow of funds and therfore does not guarantee how long such interest will be sustained. What we have thus, is a case where divestment could be sudden, which leaves the recipient economy worse off. This is simply because the value of the investment may have grown before divestment. The theoritical position that financial integration and globalization could help in risk sharing and reduction of volatiliy as upheld in the past by the IMF and other international bodies have been reviewed by them in recent years as empirical evidence speaks otherwise. IMF policies have been generally criticized and classified as more friendly to the developed economies and large corporation. In this light, it is my opinion that financial market liberalization is more of blessing to a only to a few.
Blessing to a few (developed countries) & bane to many (emerging or developing eco). Firstly financial mkt liberalisation and integration with global markets is orchestrated the vested interests of developed economies. secondly the developing economies who are starved of capital for growth welcome the capital flows not realising the 'danger of the sudden stops and reversal' of these flows. Thirdly, Efficient free market is a misnomer - it is only good to some and bad for several - and is not a zero sum game - it leaves more losers and who take ages to recover. Hence i reiterate the opening statement of this answer.
Modern liberalized markets makes countries (especially economically weaker) become even more financially dependent on developed countries. The development of the global financial market reduces the effectiveness of national economic policy. Therefore, as stated above "blessing" only for some countries.
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