Dealing with financial crises—does the world need a new international financial architecture?
The history of international financial crises shows that the consequences can be deep and widespread. For a number of nations, including the United States, the 2008 financial crisis was the deepest since the Great Depression period of the 1930s. The international spillovers that resulted have induced policymakers and economists around the world to reconsider the international financial architecture. Growth in foreign direct investment (FDI) is one of the most important developments in the evolution of global capital markets. FDI is the acquisition of foreign financial assets that results in an ownership share. With access to foreign direct investment and portfolio capital provided by foreign savers, domestic households and businesses then might expand their lending and borrowing activities abroad. Access to global capital in the form of foreign direct investment and portfolio capital inflows considerably reduces the costs to developing nations of financing investment projects.