Development

This paper discusses the benefits and risks that financial globalization entails for developing countries. Financial globalization can lead to large benefits, particularly to the development of the financial system. But financial globalization can also come with crises and contagion. The net effect of financial globalization is likely positive in the long run, with risks being more prevalent right after countries liberalize. So far, only some countries, sectors, and firms have taken advantage of globalization. As financial systems turn global, governments lose policy instruments, so there is an increasing scope for some form of international financial policy cooperation.

In this paper we make a contribution to this debate by considering several fundamental questions: What are the appropriate boundaries for the agenda of the WTO? What would constitute a “fair” agreement? What are the characteristics of a “fair” negotiating process? There are no universal answers to these questions, but there are answers that derive legitimacy from commonly agreed values implemented in a democratic process. This paper presents a set of values with a Rawlsian flavor, which we believe is consistent with the development focus of this round and a concern for social justice. In some cases we make the implications of these principles for the outcome of the negotiations explicit, however in most cases we refer the reader to more detailed discussion in Stiglitz and Charlton (2004).