By Charles Prince, Chairman and CEO, Citi

Living standards around the world are rising. Development is on the march. International trade is accelerating the pace of economic growth to the far reaches of the globe. And the lubricant of this global march of progress is the world's financial institutions.

Expanding global trade and investment have enabled much of the world to grow at startling rates. China's growth rate is nine percent per year.  India has been growing at  eight percent annually. In countries across Asia and Latin America, Eastern Europe and Africa, economic growth is also surging - in each instance reflecting the reality of economic globalization. Remarkably, global trade has grown 50% faster than worldwide GDP for the past 35 years. And during the 1990s, global trade grew twice as fast as global GDP.

A major factor in facilitating the upsurge in trade and economic growth is the  role of global financial institutions in mobilizing the world's savings to help nations, companies and entrepreneurs realize their potential.

International capital flows have been rising at a remarkable pace. IMF data put cross border capital flows at $6.4 trillion in 2005, or 14.5 percent of global GDP and four times higher than capital flows a decade earlier.

Much of that capital has been flowing from industrial countries to emerging markets. It comes in the forms of debt financing and foreign direct investment, and, increasingly, portfolio investments in the equity of domestic companies.

And recently a new phenomenon has emerged with capital flows moving from developing countries to developed ones. Oil prices and continuing U.S. trade deficits have enabled several countries in the Middle East and Asia to amass enormous pools of capital, and global financial institutions have been recycling this capital to the U.S. via U.S. Treasury securities and other financial instruments.

One important result is that the impact of these potentially dangerous imbalances in the global financial system has been mitigated. Equally important, financial globalization has made it possible to move capital efficiently to promising companies who are then able to invest in their businesses, expand and create jobs.  And finally, governments are able to utilize foreign capital to upgrade the infrastructure needed to move their economies forward.

Economists M. Ayhan Kose and Shang-Jin Wei of the IMF, Nandlal P. Tolani of Cornell University, and Kenneth Rogoff of Harvard University argue that financial globalization does more than enhance access to financing. There are also important collateral benefits.¹

They note that active engagement in international financial markets promotes development of a country's domestic financial sector. Indeed, the more extensive the presence of foreign banks in a country, the better the quality of its financial services and the greater the efficiency of its financial intermediation. Similarly, foreign involvement in a nation's equities market leads to more efficient and more liquid markets. Participation in international financial markets promotes the development of home-grown banks and securities markets.

Equally important, involvement in global financial markets imposes useful financial discipline on a government's economic and financial policies and institutions. Financial globalization leads to more rational policy choices by government and better informed economic decisions by businesses.

Increased market discipline and a maturing domestic financial sector are immensely valuable results of financial globalization. Expanding global trade and investment are bringing tangible benefits to vast numbers of nations that embrace the global economy.

As Rodigo de Rato, the Managing Director of the IMF has noted, "Trade is an engine of global growth," adding that "low income countries will only achieve sustained and rapid economic growth with more opportunities for trade."² That requires reduction in trade barriers and increased access to financing.

Global economic development has important implications for global political stability. As Susan E. Rice, a Fellow at the Brookings Institution noted in her book Global Poverty, Weak States, and Insecurity, the world's poorest countries are also the weakest states, lacking not only the ability to meet the basic needs of their people but also to provide protection against violent conflict. The most effective way to raise the incomes of nations and their people is by facilitating their participation in the global trading system.

The potential benefits are enormous: William R. Cline of the Petersen Institute for International Economics estimates that free trade could inject $200 billion annually into the economies of developing countries. This would help 500 million people escape poverty and reduce world poverty by 25 percent.³

The world's financial services firms are at the nexus of global development and trade. They perform a vital task by deploying capital from across the globe to foster new economic activities and build new enterprises wherever opportunity awaits. As we do that successfully, sustained economic growth will be the result. The happy corollary will be rising living standards and improvement of the human condition in parts of the world where once hope was little more than a distant mirage.

Charles Prince is the Chairman and CEO of Citigroup, Inc.

¹ See "Financial Globalization: A Reappraisal," IMF Working Paper No. 06/189

² "Global Imblances and Global Poverty," Remarks by Rodigo de Rato, Columbia University, New York,  February 23, 2005.

³ William R. Cline, "Trade Policy and Global Poverty," Institute for International Economics (June 2004).