Financial integration While dominant economic theory suggests that capital account liberalization has a more or less significant impact on economic growth, there are also a number of works that call into question the existence of capital mobility-related benefits. Dominant economic theory suggests that financial globalization and international financial integration may foster more efficient resource allocation, facilitate risk diversification, increase specialization in production, create technological spin-offs, contribute to the development of the financial system, improve investment rates and boost growth (refer, in particular, to IMF (2001) ; Edison, Klein, Ricci and Sløk (2002a and 2000b) ; Henry (2000) ; King and Levine 1993); Mougani (2001 and 2006) ; Obstfeld (1994) ; Prasad et al. (2003); and Stulz (1999). In acknowledging the existence of these potential impacts, the industrialized countries have been committed to capital account liberalization policies for over a quarter of a century. According to these authors, many of the positive impacts observed in these countries are largely due to increased investment opportunities and financial development induced by greater openness of capital markets. Many studies and international financial institutions publications have naturally proposed that less developed countries should adopt economic policies aimed at fostering greater international financial integration. However, this approach has been criticized by others who, in particular, note that fluctuations in capital flows related to capital account liberalization are likely to cause and spread financial crises3. These new stances were mainly developed after the crises of the 1990s. Institutions such as the International Monetary Fund and some authors thus emphasized that while financial openness is desirable, it is essential for such liberalization to be gradual and prudent (IMF 2001). The concepts of financial globalization and international financial integration are closely linked. Financial globalization is a broad concept that refers to the strong expansion of transnational financial flows (Prasad et al. 2003). According to the World Bank, ‘financial globalization’ or ‘globalization of financial markets’ can be defined as “as the integration of a country’s local financial system with international financial markets and institutions” (World Bank, Global Development Finance, 2010). The concept of international financial integration (or financial integration) refers to the specific links of a country with international capital markets (Prasad et al. 2003). In other words, international financial integration can be likened to the opening of domestic financial systems, such as financial markets and institutions and banking systems, to the rest of the world and the internationalization of financial assets and liabilities managed by resident entities. It is also comparable to the concepts of financial liberalization and financial openness and the terms financial liberalization, financial openness, and international financial integration are used interchangeably.
Posted on: Mon, 17 Mar 2014 12:16:53 +0000
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