The effects of international financial integration on output and consumption volatilities in developing countries

Abstract

In this paper, the effects of international financial integration on macroeconomic volatilities in developing countries are analyzed over the period 1980-2014. The following results are reported as a result of examination of macroeconomic volatility series in developing countries; average output and consumption volatilities have decreased for developing countries especially since 2000. However, relative volatility (the ratio of consumption volatility to output volatility) has increased in the 2000s compared to 1990s in some developing countries like Turkey and South Korea. In other developing countries like Brazil and Mexico, it has decreased. In the econometric part of the analysis, it has been concluded that financial openness decreases output volatilities and increases consumption volatilities. On the other hand, trade openness does not have any impact on macroeconomic volatilies. Finally, financial development increases macroeconomic volatilities.