Benefits and Costs of International Financial Integration: Theory and Facts

30 Pages Posted: 29 Sep 2003

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Multiple version iconThere are 2 versions of this paper

Abstract

This paper provides a selective review of the recent analytical and empirical literature on the benefits and costs of international financial integration. It discusses the impact of financial openness and capital flows on consumption, investment and growth, as well as the impact of foreign bank entry on the domestic financial system. It argues that, for small open developing countries, the benefits of financial integration are mostly long term in nature, whereas risks can be significant in the short-run. Careful preparation and management are therefore essential to ensure that short-run costs do not lead to policy reversals. It also stresses that the empirical evidence on the impact of foreign direct investment on domestic capital formation and growth, as well as on the effects of foreign bank entry, should be viewed with caution. In particular, the possibility that foreign bank penetration may lead to adverse changes in the allocation of credit cannot be dismissed on the basis of the existing evidence.

Suggested Citation

Agenor, Pierre-Richard, Benefits and Costs of International Financial Integration: Theory and Facts. World Economy, Vol. 26, pp. 1089-1118, August 2003. Available at SSRN: https://ssrn.com/abstract=443782

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
25
Abstract Views
2,001
PlumX Metrics