A central dimension of globalization is the world trend toward larger trade and financial openness, observed in most industrial and developing economies. Openness increases the integration of world goods and capital markets, contributing to potential gains in growth and welfare. However, increased integration may also lead to heightened vulnerability to external shocks. This vulnerability may be particularly important in developing countries, given their production specialization, nondiversified sources of income, unstable policies, incomplete financial markets, and weak institutions.