ROLE OF INTERNATIONAL FINANCE IN DRIVING ECONOMIC STABILITY IN DEVELOPING MARKETS

Abstract

The role of international finance in supporting economic stability in developing markets has become increasingly important in today's global economy. Access to international financial flows including foreign direct investment (FDI), portfolio flows, remittances, development aid, and engagement with international financial institutions is one of the most significant determinants of growth and resilience of emerging market economies. This study explores the impact of international finance on economic stability in developing markets by analyzing theories and contrasting the empirical evidence from comparative case studies. The evidence confirms that international finance positively impacts economic stability by enhancing capital accumulation, financial sector and infrastructure development, increasing foreign exchange reserves, and alleviating exchange rate shocks. The research also highlights the negative aspect of international finance with its reliance on contingent and volatile capital flows, external debt burdens and systemic exposure to global financial market crises. This paper concludes that the potential developmental benefits of international finance depend on their governance and institutional capacity to allow for coherent macroeconomic and regulatory policies. Furthermore, it emphasizes the necessity for developing economies to balance openness to international capital with policies that safeguard national economic sovereignty. The study concludes that international finance can help to stimulate sustainable growth and macroeconomic stability, but only if accompanied by good fiscal management, transparency, and coherence with long term development objectives. In this context, the research presents policy recommendations to help developing economies to benefit from international financial integration and manage risks accordingly.