Thresholds in the process of international financial integration

Abstract

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Exploring the nexus between financial openness and informational efficiency – does the quality of institution matter?

“…It seems that an economy needs certain threshold levels of institutional development before it can reap the benefits of financial openness (Ayhan Kose, 2011). For instance, Law (2009) found evidence that, even though openness in terms of trade and capital account does lead to financial development, the level of openness in developing countries is extremely dependent on a country's pre-existing circumstance.…”

Does foreign bank entry contribute to financial development? Examining the role of income thresholds

“…4 Though most of the literature has looked at institutional and macroeconomic variables as determinants of financial depth, a small but growing literature identifies openness to international financial flows as another important determinant of financial depth in EMDEs. One of the central conclusions from this literature is that higher international financial openness is positively associated with domestic financial sector depth, though it is conditional on countries achieving a certain threshold of institutional development (Baltagi, Demetriades, & Law, 2009;Calderon & Kubota, 2009;Chinn & Ito, 2006;Kose, Prasad, & Taylor, 2011). Kose et al (2011) posit that financial sector development is one of the primary "collateral benefits" of international financial openness and that the development of domestic financial markets, as well as enhanced corporate and public governance, indirectly contribute to overall economic growth.…”

“…Finally, testing for threshold conditions in the process of international financial integration and how it affects economic growth, Kose et al (2011) undertake standard cross-country growth regressions for 84 countries between 1975 and 2004. Their findings suggest that there are "clearly identifiable thresholds" in key variables such as financial depth and institutional quality, and that the growth benefits from financial openness significantly improve once countries pass those identified thresholds.…”

Financial Liberalization and Stock Market Efficiency: Causality Analysis of Emerging Markets

“…This strand of studies explains that positive impacts of market liberalization are only visible under a developed financial system and improved institutions (see Fuchs-Schundeln & Funke, 2003;Galindo et al, 2007;Huang & Huang, 2008;Kaminsky & Schmukler, 2008;Chen, 2009;Ayhan Kose et al, 2011;Bekaert et al, 2011). This strand of studies explains that positive impacts of market liberalization are only visible under a developed financial system and improved institutions (see Fuchs-Schundeln & Funke, 2003;Galindo et al, 2007;Huang & Huang, 2008;Kaminsky & Schmukler, 2008;Chen, 2009;Ayhan Kose et al, 2011;Bekaert et al, 2011).…”