Financial Integration, Globalization, Growth and Systemic Real Risk

Federal Reserve Bank of St. Louis Working Paper 2010-012D

37 Pages Posted: 14 Apr 2010 Last revised: 23 Oct 2010

See all articles by Gianni De Nicolo

Gianni De Nicolo

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

Luciana Juvenal

Federal Reserve Bank of Saint Louis

Date Written: October 20, 2010

Abstract

Using data for a large number of advanced and emerging market economies during 1985-2009, this paper documents the dynamics of financial integration and assesses whether advances in financial integration and globalization yield the beneficial real effects resulting from a more efficient resource allocation predicted by theory. We find that: (a) financial integration has progressed significantly worldwide, within regions, and particularly in emerging markets; (b) advances in financial integration and globalization predict higher growth, lower growth volatility, as well as lower probabilities of systemic real risk realizations; (c) financial integration fosters domestic financial development and the liquidity of equity markets; and (d) the quality of institutions and corporate governance are important determinants of the levels of financial integration and globalization. Thus, financial integration and globalization appear to yield direct as well as indirect benefits in the form of improved countries’ growth prospects and lower systemic real risk.

Keywords: financial integration, growth, financial openness, financial development, equity market liquidity

JEL Classification: F36, G15

Suggested Citation

De Nicolo, Gianni and Juvenal, Luciana, Financial Integration, Globalization, Growth and Systemic Real Risk (October 20, 2010). Federal Reserve Bank of St. Louis Working Paper 2010-012D. Available at SSRN: https://ssrn.com/abstract=1588992 or http://dx.doi.org/10.2139/ssrn.1588992

Gianni De Nicolo

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

Luciana Juvenal (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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