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«UDC 336.049.3 Evaluating The State Of Financial Globalization: Ukraine’s Specific Features* NATALIA STUKALO * * ABSTRACT. This article presents a ...»

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UDC 336.049.3

Evaluating The State

Of Financial Globalization:

Ukraine’s Specific Features*


ABSTRACT. This article presents a system for evaluating the state of financial globalization in a given country. It identifies the contemporary distinctive features of globalization in the area of finance. It also systematizes

available globalization indicators at all levels of the financial system. It collects and analyzes statistical data with regard to key financial globalization indicators for Ukraine and Russia as countries that will soon become members of the World Trade Organization. Based on this analysis, the article provides an overview of the contemporary distinctive features of the financial sector in these counties in the context of globalization.

KEY WORDS: globalization, financial globalization, cyclic progress of globalization, financial integration, globalization indicators, financial globalization indicators, financial system, evaluation of financial globalization.

Introduction Globalization is one of the main distinctive characteristics of today’s world. It has penetrated almost all areas of human life and its impact is now as powerful as ever. Today it is especially important to study the problems and specific aspects of economic, and in particular financial, globalization, which is also growing in view of Ukraine’s anticipated membership in the World Trade Organization.

Furthermore, as globalization deepens, the academic community is trying to more closely address the problem of how to measure it.

* This article was translated from its original in Ukrainian.

** Natalia Stukalo is Associated Professor at the Department of International Finances and Deputy Dean for Research in the Faculty of International Economy at Dnipropetrovsk National University. Ms Stukalo successfully defended her dissertation for her Candidate Degree at Kiev National Economic University in 2000. She completed internships at the University of Amsterdam (the Netherlands), University of Leuven (Belgium), Harvard University (United States). She is the author of a number of research papers and methodological works on international finances, development of Ukraine’s financial system, etc., including the training manual International Finances (2005) and coauthor of the Monograph International Leasing (2004). She was a participant in the Young Scholars competition held on 17 May 2006 at Kyiv National Economic University in Kyiv co-sponsored by the Center for Trade Policy and Law, Carleton University and the University of Ottawa (Ottawa, Canada) and financially supported by the Canadian International Development Agency (CIDA).

© Natalia Stukalo, 2006


Thus, a system for evaluating the processes of financial globalization is needed to ensure their efficient management, to forecast their implications, and to provide a comparative analysis.

The current problems and trends of globalization are examined by various disciplines and academic schools; that is why there is no single approach to the interpretation of ‘globalization’. The distinguished researcher, T. Levitt,1 who introduced this term to academic usage, defined ‘globalization’ as a merger of markets of certain products manufactured by multinational companies. Today, the majority of experts agree that globalization is an objective social process, marked by growing interrelationships and interdependence among national economies, national political and social systems, national cultures, and interaction between people and the environment.2 The economic encyclopedia also describes globalization as the exchange of goods, services, capitals and labor across national borders, which has become a continuous and escalating process of national economies intertwining internationally since the 1960s.3 Globalization extends the international division of labor and, at the same time, gradually builds an integrated and interdependent global economy, where its individual components are closely connected by financial-economic, industrial-technological, informational and other links that are much more comprehensive, numerous and deeper now than at any previous time. Globalization is the highest stage of internationalization of all production factors and, by embracing all national economies, it gradually builds an integrated global economic system.

Financial globalization is one globalization process and is described as a free and effective movement of capital between countries and regions, the operation of a global market, the formation of a system for supranational regulation of international finances, and the implementation of global financial strategies by multinational corporations and transnational banks.4 In its broadest sense, financial globalization is the ideology, policy and practice that integrates national monetary systems and replaces them with ‘global money’.5 Globalization manifests itself at the regional (and sometimes sectoral) level through financial integration which can be represented as the approximation and gradual integration of national economic and financial systems within a certain region and which is one of the Levitt, Theodore (1983). The Globalization of Markets, in Harvard Business Review, 61 (May/June), 92—102.

Lukashevych V.M. Hlobalistyka, Lviv, Novyi svit — 2000, 2004, p. 13—16.

Hlobalizatsiya, in Ekonomichna entsyklopedia, v. 1. Kyiv, Akademia, 2000, p. 264—265.

Khominich L.P. Finansovaya globalizatsiya, in Bankovskiye uslugi, 2002, No. 8, p. 2—13.

Makushkin А. Finansovaya globalizatsiya, in Svobodnaya mysl — ХХI, 1999, No. 10 (1488).

p. 30—43.


most advanced forms of economic internationalization. Effective integrated associations lay a solid foundation for their further expansion and enlargement; in other words, they prepare the ground for globalization.

Because globalization research is so important, many foreign and domestic scholars examine this issue, especially those by М. Alle6, О. Belorus7, P. Herst and G. Thompson8, G. Kolodko9, D. Нeld and A. McGrew10, G. Soros11, O. Mozgovy12, H. Manilovska and L.

Yaremko13, V. Lukashevych14, D. Lukyanenko15, T. Tsyhankova16, А.

Filipenko17, Z. Lutsyshyn18, S. Sidenko19, Yu. Pavlenko20, O. Plotnikov21, А. Kredysov22. Both domestic and foreign researchers have studied the issue of measuring the rate of development of globalization in general and finance in particular, such as Т. Andersen and Т.

Herbertsson23, J. Hanson, P. Honohan and G. Majnoni24, B.

Hubsky25, О. Rohach26, S. Pereslegin and N. Yutanov27, V. AvaneMorris Alle. Globalizatsia: razrusheniye usloviy zaniatosti i ekonomicheskoho rosta. Empiricheskaya ochevidnost, Moscow, TEIS, 2003.

Globalnye transformatsyi i strategii razvitia, by Belorus О., Lukyanenko D. et al, Kyiv, Oriane, 2000.

Paul Herst, Grehem Thompson. Sumnivy v hlobalizatsiyi. Translated from English, Kyiv, К.І.S., 2002.

Kolodko Gzegoz V. Hlobalizatsia i perspektyvy postsotsialistychnykh krain. Kyiv, Osnovni tsinnosti, 2002, p. 202.

Held D., McGrew A. Hlobalizatsia/antyhlobalizatsia, Translated from English, Kyiv, K.I.S., 2004.

Soros G. Dzhordzh Soros pro hlobalizatsiyu, Kyiv, Osnovy, 2002 and Soros G. Kryza hlobalnoho kapitalizmy, Kyiv, Osnovy, 1999.

Mizhnarodni finansy, Ed by О. Mozgovyi, Kyiv, КNEU, 2005.

Manilovska H., Yaremko L. Hospodarska hlobalizatsiya ta upravlinnia zovnishnioekonomichnoyu sferoyu, Lviv, LKA, 2001.

Lukashevych V.M. Hlobalistyka, Lviv, Novyi svit — 2000, 2004.

Stratehiyi ekonomichnoho rozvytku v umovakh hlobalizatsiyi, Ed. by D. Lukyanenko, Kyiv, KNEU, 2001.

Hlobalna torhova systema: rozvytok instytutiv, pravyl, instrumentiv SOT, Ed by Т. М.

Tsyhankova, Kyiv, КNEU, 2003.

Ukraina i svitove hospodarstvo, by A.S. Filipenko, V. Budkin, А. Halchynsky et. al., Kyiv, Lybid, 2002.

Lutsyshyn Z. Transformatsiya svitovoi finansovoi systemy v umovakh hlobalizatsiyi, Kyiv, VTs DrUk, 2002.

S. Sidenko. Sotsialno-ekonomichny vymir suchasnoyi hlobalizatsiyi, in Mizhnarodna ekonomichna polityka, 2004, June, Issue 1.

Pavlenko Yu. Hlobalizatsiya ta tsyvilizatsiyni zrushennia siohodennia, in Mizhnarodna ekonomichna polityka, 2005, October, Issue 1.

Transnatsionalni korporatsiyi, by О. Plotnikov, V. Rokocha et. al., Kyiv, Takson, 2001.

Upravleniye vneshneekonomicheskoy deyatelnosti, Ed. by А. Kredisov, 2nd edition, Kyiv, Vira-R, 2001.

Torben M. Andersen, Tryggvi Thor Herbertsson. Measuring Globalization, Bonn, IZA DP817, 2003.

James А. Hanson, Patrick Honohan, Giovanni Majnoni. Problemy integratsiyi I masshtabov, in Globalizatsiya i natsionalnye finansovye sistemy, Ed. By J. А. Hanson, P. Honohan, G. Majnoni. Translated from English, Moscow, Ves Mir, 2005, p. 4—5.

Hubsky B. Investytsiyni protsesy v hlobalnomu seredovyschi, Kyiv, Naukova Dumka, 1998.

Rohach О. TNK ta ekonomichne zrostannia, Kyiv, VPTs «Kyivsky Universytet», 2003.

Pereslegin S., Yutanov N. Ot «sistemnoy modeli» k strukturodinamike, from www.arhipelag.ru/authors/pereslegin/


sian, Т. Dzhrbashian, А. Egiazarian28 and others. A significant contribution in studying the issue of evaluating globalization and developing indicators has also been made by experts of the Organization for Economic Cooperation and Development, Foreign Policy magazine and A. T. Kearney consultancy firm, International Monetary Fund, World Bank, etc.

The goal of this article is to develop a system of for evaluating financial globalization for individual countries and to provide a comprehensive evaluation of financial globalization for Ukraine and Russia.

Distinctive features of financial globalization today

Presently, globalization has a number of distinctive features, including the following key aspects. First, there is a probability that globalization will slow down. As we examine the ideas of cyclical global development presented by ancient philosophers, the historical experience, the evolution of economic and financial globalization, as well as works by domestic and Western experts and modern trends in the world economy, we can conclude that separate stages of globalization should be distinguished by the degree of their intensity.

Most academics and practitioners believe that globalization is a continuous process, irreversible and ‘eternal’. For instance, the world renowned Polish economist and international expert Professor Gzegoz V. Kolodko noted that “...transformation should end at some point but globalization in principle will always continue. This is a process and not a condition that can be achieved once and forever.»29 In other publications30, I proposed the idea of cyclical intensity in economic and financial globalization, according to which economic and financial globalization is a continuous and irreversible process, but depending on many political, economic, financial, environmental, psychological and other factors, the intensity of globalization may accelerate or even halt. Globalization will deepen as long as the public approves it, countries, nations, economists and politicians see its significant advantages, and multinational compaAvanesian V., Dzhrbashian Т., Egiazarian А. Kontseptsia strategii ustoichivoho economicheskogo razvitia Armenii na dolgosrochnuyu perspektivu, in Ekonomicheskiy ezhenedelnik Armenii, June 10-16, 2003, No. 27 (531).

Kolodko Gzegoz V. Hlobalizatsia i perspektyvy postsotsialistychnykh krain. Kyiv, Osnovni tsinnosti, 2002, p. 202.

Stukalo N.V. Finansova hlobalizatsiya: suchasni tendentsii rozvytku ta vysnovky dlia Ukrainy, in Prometei: rehionalnyi zbirnyk naukovykh prats z ekonomiky, Donetskyi ekonomiko-huanitarnyi instytut MON Ukrainy, Instytut ekonomiko-pravovykh doslidzhen NAN Ukrainy, Issue 2 (17), Donetsk, TOV «Yuho-Vostok, Ltd», 2005, p. 41—44.


nies and banks obtain considerable benefits from it. This will continue until any negative aspects and consequences of globalization exceed its positive impact on the public in general and each country, company and individual in particular, or certain force-majeure circumstances slow it down. With the passage of time, various international economic players begin to look for new ways to increase their profits by integrating world markets in goods, services, capital, labor, etc., which results in another period of accelerated globalization. This assumption is demonstrated, for instance, by the fact that globalization accelerated in the early 20th century, then slowed down, and then accelerated again with the collapse of the USSR.

Regardless of the fact that international economic relations today display a tendency to accelerate and deepend globalization, I predict that globalization in the world economy and finances will slowdown in the nearest future (a slowdown but not a complete halt). This prediction is confirmed by the fact that more and more experts and specialists express their doubts as to whether globalization’s positive effects are greater than its negative effects. Examples can be found in the research by Nobel Prize winner Morris Alle31, Paul Herst and Graham Thompson32, George Soros33 and others.

Secondly, financial globalization takes place within the framework of modern trends in philosophy which themselves undergo a transformation that signifies a shift from modernism to postmodernism.

Postmodern characteristics include a retreat from the ideals of democracy and humanism, a division of society into those who are ‘more dignified’ and others, the recognition of natural market selection and severe competition, etc. The global financial market is one of the most vivid manifestations of the postmodern worldview.

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