Financial Integration and Risk-Adjusted Growth Opportunities

26 Pages Posted: 1 Jul 2008

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Iryna V. Ivaschenko

International Monetary Fund (IMF) - Research Department

Date Written: May 2008

Abstract

This paper documents the evolution of measures of financial integration for major advanced and emerging markets economies, assesses whether advances in integration have had a significant positive impact on countries' risk-adjusted growth opportunities, and identifies some of the channels through which financial integration may foster growth. Three main results obtain. First, financial integration has progressed significantly worldwide, particularly in emerging markets, and regional integration has advanced at the fastest pace in Europe. Second, a country's speed of integration predicts future country's risk-adjusted growth opportunities, while improved risk-adjusted growth opportunities predict future advances in integration, indicating that the countries whose integration has been faster may have benefited most from a virtuous dynamics in which financial integration and improved real prospects are mutually reinforcing. Third, financial integration predicts globalization but the reverse does not necessarily hold, while advances in financial integration predict advances in financial development and improvements in the liquidity of equity markets.

Keywords: Working Paper, Economic integration, Developed countries, Developing countries, Globalization, Liquidity, Financial risk

Suggested Citation

De Nicolo, Gianni and Ivaschenko, Iryna, Financial Integration and Risk-Adjusted Growth Opportunities (May 2008). IMF Working Papers, Vol. , pp. 1-24, 2008. Available at SSRN: https://ssrn.com/abstract=1153747

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Iryna Ivaschenko

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4271 (Phone)

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