The explosive rise of the international finance transactions as well as the capital flows is currently is amongst the far-reaching developments in the economy. The net private fund flows towards the developing countries has been tripled i.e. from approximately $50 billion during 1987 to 1989 to an amount more than $150 billion in a year between 1995 to 1997.During the same duration the ratio of the private capital funds towards the domestic investments in the developing countries had increased from 3% in the year 1990 to 20%in the year 1996.Hence, this effected a move from national economy to the global economies wherein the consumption and production is internationalized as well as the capital flows instantly and freely across borders.
Various powerful forces had driven the rising growth of the capital flows internationally, including the pattern in the industrial as well as developing countries for economic liberalization as well as the trade globalization. Innovatory changes in the communication and information technologies had changed the industry of financial services worldwide. Usage of computer links have enabled various investors to get information on the asset prices immediately at a minimal cost, whilst the enlarged computing power helps them to quickly circulate correlations amongst the asset prices as well as between other variables and asset prices. Moreover, the new technologies have made it very hard for governments to get a hold on either outward or inward capital flows internationally whenever they are willing to do.
By referring to this, probably the financial markets are understood better as networks whereas the global markets are known as networks of various markets which are linked via financial services or hubs.
Hence as the capital markets are liberalized along with it what increases is the volatility and the volume of capital flows internationally. This is an irreversible as well as ongoing process.
This has contributed towards faster growth, increasing living standards and higher investment. However this might also increase stresses and stocks which could result in financial crisis.
Global trade had witnessed a slowdown since the last two years because of contraction in trade in the East Asian economy. Usually, the world GDP as well as the trade growth lowered in the year 1977/1998 because the crisis in the East Asian economy deepened hence its effect was felt highly on the outer region. Asia had recorded the strongest contraction on export and import in terms of value and volume for all regions of world.