Effects Of Financial Integration Research Articles

Impact of Globalization on the Economic Development of Nigeria

This research aims to investigate the effects of globalization on Nigeria's economic development. Globalization has helped Nigeria, a developing nation, compete with other established nations, according to various opinions on its effects, both positive and negative. The study's goal was to determine the impact of globalization on the Nigerian economy. The researcher consequently evaluated the body of studies on how globalization has affected Nigeria's economic progress. Thus, the notions of globalization and development, as well as various aspects of Nigeria's development, are critically analyzed, as is the effect of globalization on the global economy. The outcome showed that all traditional economic development factors, including private investment, public investment, and debt series, as well as indicators of economic integration (trade openness and financial integration), were non-stationary. The study also proved that trade openness significantly boosted Nigeria's economy. However, at a 10% threshold of importance, the effect of financial integration on the economy is negligible. The study came to the conclusion that if Nigeria's economy completely integrated with the rest of the globe, it would gain more from globalization. Therefore, the report advocated for the elimination of all restrictions on commerce and money flow. The growth of the Nigerian economy to keep up with globalization is recommended based on analysis of the effects of globalization on economic development. It was therefore deduced that “if appropriate measures are not implemented, Nigeria may not participate in this process, leading to the globalization of poverty rather than wealth”.

A Re-Examination of the Effect of Financial Integration on Financial Development in Sub-Saharan Africa

A Re-Examination of the Effect of Financial Integration on Financial Development in Sub-Saharan Africa

The growth effects of financial integration in the ASEAN countries

PurposeFinancial integration has played an essential role in achieving economic growth in the members of the Association of Southeast Asian Nations (ASEAN). However, its effects on economic growth in the region in the long run have been underexamined. This paper examines these effects for the ASEAN member countries.Design/methodology/approachA fully modified ordinary least squares (FMOLS) estimation is used to take into account two critical econometric issues in panel data analysis, including (1) cross-sectional dependence and (2) slope heterogeneity. The dynamic ordinary least squares estimation is also used for robustness analysis. The authors use the generalized least squares estimation to examine the effects in the short run.FindingsThis study’s empirical results confirm the important role of financial integration to economic growth in the ASEAN countries in the short term. However, the effects appear to disappear in the long term. The authors also find capital, labor, and human development positively contribute to economic growth in the region. International trade plays a significant role in supporting economic growth in the ASEAN in the short run. However, its effect seems to weaken in the long run.Originality/valueThe growth effects of financial integration in the ASEAN region in the long term have largely been neglected. As such, the authors examine these effects using updated data on financial integration. The authors extend this study’s analysis by considering foreign direct investment and financial depth as the alternative proxies for financial integration. Other estimation technique is also used as the robustness check.

Effects of International Financial Integration on Economic Growth in Developing Countries: Heterogeneous Panel Evidence from Seven West African Countries

From the existing literature, there is no consensus on the effects of financial integration on economic growth. The studies have mostly focused on country samples without taking into account country heterogeneity, or have been limited to a causality study. This paper examines the effects of international financial integration on economic growth in seven West African Economic and Monetary Union’s countries (WAEMU)[i], over the period 1980 - 2019. Methodologically, the study applies heterogeneous panel techniques taking into account inter-individual dependence (MG, CCEMG and AMG). The results show that the stock of external debt and the opening of the capital account negatively affect long-term economic growth in the WAEMU region. The country analysis confirms the panel results for Benin, Burkina Faso and Mali. Sectoral misallocation of external capital could be a plausible explanation. The economies of WAEMU countries are mostly dominated by the service sector, which contributes more to their GDP than the productive sectors, i.e. agriculture and industry. While the agricultural sector, which employs a large part of the active population, is still traditional and does not benefit from capital inflows, the industrial sector is still embryonic. [i] Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. In this study, we have removed Guinea-Bissau due to lack of data over a large part of the period.

Financing renewable energy generation in SSA: Does financial integration matter?

Despite growing attention on the role of renewable energy in promoting economic growth and environmental sustainability, its adoption rate remains uncomfortably low, especially in developing countries. This study attempts to explore the ways to extend the installed capacity of renewable energy in 16 sub-Saharan African (SSA) countries over the period 1980-2017. The results from panel cointegration econometric techniques suggest that policies to enhance financial integration should increase the installed capacity of renewable energy in SSA both in the long and short-run. This long-run effect holds, although disproportionately when the financial integration index is disaggregated into its de facto and de jure aspects. Moreover, the quantile regression analysis reveals that the effect of financial integration on renewable energy capacity is positive but heterogeneous across the conditional distribution of renewable energy capacity. However, the positive effect of financial integration is not enough to ensure the diversification of the energy mix. The results finally show that economic growth is positively linked to renewable energy generation capacity while financial development is negatively associated with renewable energy production.

Asymmetric linkages between renewable energy consumption, financial integration, and ecological sustainability: Moderating role of technology innovation and urbanization

Despite their economic success, the BRICS countries have yet to achieve environmental sustainability. On the other hand, these countries will not be able to maintain their economic expansion if they do not protect the natural environment. In this regard, this paper intends to assess the effects of financial integration (globalization) on ecological footprint. The paper also considers other ecological footprint drivers, including economic expansion, urbanization, renewable energy and technological innovation. The research utilizes a dataset spanning from 1990 to 2018. The study employed the method of moments quantile regression (MMQR) approach, which is robust to cross-sectional dependence and slope homogeneity issues. The outcomes from the MMQR disclose that the effect of financial globalization on ecological footprint is positive across all quantiles (0.1–0.90), thus validating the pollution haven hypothesis (PHH) in the BRICS nations. Furthermore, both renewable energy and technological innovation curb ecological footprint across all quantiles (0.1–0.90). Moreover, technological innovation is proven to impact the environment positively across all quantiles (0.1–0.90) via the path of urbanization. As a result, technological innovation is projected to help the BRICS nations achieve sustainable urbanization. The DOLS, FMOLS, FE-OLS outcomes also validate the outcomes of MMQR. Based on these results, policies were proposed.

Financial integration and the comparative advantage of exports

We use a cross-country cross-industry unbalanced panel dataset to examine whether countries with a higher degree of international financial integration exhibit a greater comparative advantage in the exports of industries that rely more on external financing. Our results indicate that financial integration can be a source of comparative advantage, especially for industries relying more on external finance. However, the benefits of financial integration also depend on a country’s quality of economic and legal institutions. The pros and cons of international financial integration are still being debated in the literature. Our study adds empirical evidence to the beneficial effects of financial integration on real economic activity.

Developing Financial Integration with the Introduction of Financial Technologies in the Eurasian Economic Union Countries

The global economic crisis of 2008-2009 and all subsequent crisis waves revealed the need to deepen regional integration processes in order to mitigate the consequences of crises and prevent future financial shocks. This aspect seems significant even for the European Union, which has already achieved a high level of financial integration due to the introduction of a single currency and the establishment of the European Central Bank. However, this problem is even more topical for countries with a significantly less developed level of integration, including the countries of the Eurasian Economic Union (EAEU). The positive effect of financial integration is largely due to financial globalization and digitization of the economy, fintech development, which is a transformative mechanism for coordinating fiscal and monetary policy instruments in financial services, as well as removing barriers to cross-border financial transactions. The purpose of the study is to uncover the prerequisites and trends of financial integration of the EAEU countries amid rapid fintech development and application. The possibilities of its use are revealed by blockchain, Big Data, artificial intelligence, crowdfunding, which can contribute to optimizing customer service, asset management of financial institutions in the domestic market, simplify and increase the speed of information exchange between financial institutions of different countries and the VAT refund process, increase investment flows, develop previously unused business lines, create collective projects and, as a result, contribute to further financial integration and mutually beneficial cooperation. The methodology of the study is based on the synthesis of comparative, structural, expert opinions and statistical analysis methods. Regulatory legal acts of the EAEU and individual countries of the alliance, reports and analytical materials of the Eurasian Economic Commission (EEC) and central banks of the EAEU countries served as the primary sources of the research. It has been revealed that the introduction of fintech in most of the analyzed countries outpaces the formation of the legal basis. At the same time, it was found that the spread of fintech can assist the implementation of all measures outlined by the Concept of Forming a Common Financial Market of the EAEU countries. Owing to Belarus, Kazakhstan and Russia, which are more advanced in fintech, Armenia and Kyrgyz Republic have the opportunity to achieve a competitive level in this area in a shorter time.

The effects of financial integration during crises

We investigate the role of financial integration in the spread of the 2008 global financial crisis. Using a rich dataset covering 31 countries between 1978 and 2018, we find that during the 2008 financial crisis, when two countries have a higher level of financial integration, their consumption cycles are more synchronized. Similar patterns are found for investment and output. However, we also find that during times outside of the 2008 financial crisis, higher financial integration leads to more divergent consumption and output cycles. We build a two-country model with global banks and variable capital utilization to illustrate that the impact of financial integration on business cycle synchronization depends on the type of shock and that variable capital utilization is the key to accounting for the relationship between financial integration and investment synchronization. The calibrated model replicates our empirical findings reasonably well. Finally, our welfare analysis indicates that financial integration leads to welfare losses during financial crises but to welfare gains outside of financial crises.

Pollution control in Africa: the interplay between financial integration and industrialization.

We employ the pool mean group method of estimation and panel causality to investigate the effect of financial integration and industrial development on pollution in 36 African countries between 1990 and 2019. Result shows a unidirectional causality running from industrial development to financial integration and pollution in Africa. Also, the panel regression shows that financial integration insignificantly abates pollution in the short run, but significantly worsens the long-run pollution in the continent. Again, the result indicates that industrial development insignificantly heightens pollution in both periods, while interplay between financial integration and industrial development exerts a negative impact on both short- and long-run pollution in Africa. The study recommends that African leaders should harness the benefits of financial integration to accelerate African industrial development and ensure the full implementation of environmentally sustainable policies to checkmate pollution emissions.

Financial integration and the co-movement of economic activity: Evidence from U.S. states

We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for financially dependent industries. Finally, we show that integration increases the similarity of bank lending fluctuations between states and contributes to the transmission of deposit shocks across states.

Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development

PurposeThis study aims to observe the extent of asset diversification benefits in the Association of Southeast Asian Nations (ASEAN)-5 market by examining the effect of financial integration (FI) and financial development (FD) on domestic stock–bond co-movements, SBcorr.Design/methodology/approachThe dynamic conditional correlation - multivariate generalized autoregressive conditional heteroskedasticity (DCC-MGARCH) technique is adopted to construct FI and stock−bond co-movement variables. Then, the study uses static panel data analysis to examine the effect of FI on stock−bond co-movements.FindingsFI does not provide asset diversification benefits due to high country risks in ASEAN-5. However, when FI is moderated by FD, FI × FD, the study shows that FI × FD provides higher asset diversification benefits in ASEAN-5.Originality/valueThis study shows the importance of incorporating the level of FD when assessing the effect of FI on stock–bond co-movements in ASEAN-5. In the presence of FI, a well-diversified investor should always consider the state of FD, which will show a better representation of asset diversification strategy in the emerging markets. Additionally, policymakers of ASEAN-5 countries should prioritise enhancing their financial system to attract more investment into the countries.

A Survey of Literature on Measurement of Financial Integration: Need, Challenges, and Classification

ABSTRACT Through a survey of literature in the measurement of financial integration (FI), this study explores the historical footprints on the measurement of financial integration, key issues, and challenges. We document the evolution of measurements during 1980–2018 and extend the measurement classification with specific criteria associated with the measurements. Furthermore, this study identifies the strength and weaknesses of existing measurements and highlights the need and criteria for choosing an appropriate measure. Finally, our study concludes that as one of the pillars of globalization, appropriate quantification of FI is a major challenge and crucial for monitoring the level and effect of FI for an economy.

Does deeper financial integration lead to macroeconomic and financial instability in Asia?

Even though a deeper financial integration and higher economic and financial stability are the prime goals of many Asian policymakers, no researcher has studied the relationship between integration and (in)stability in Asia. To fill this gap in the literature, this paper investigates the causality between financial integration and macroeconomic and financial instability. To this end, we use the Generalized Method of Moments to estimate a set of dynamic panel data models for a block of Asian countries over the period 2000–2017. Our estimation results show that there is a bidirectional causal relationship between financial integration and instability in Asia. Moreover, we find that financial integration causes instability in output and credit markets. The overall results show that macroeconomic and financial instability in Asia leads to financial disintegration. More specifically, the volatilities of the exchange rate and output growth cause financial fragmentation. Furthermore, we underscore the role of coordinated fiscal and monetary policies in offsetting the adverse effect of financial integration on macroeconomic and financial stability in Asia. Finally, the global financial crisis of 2008 has increased financial disintegration and instability in Asia. Our findings might help Asian policymakers to choose their policy targets when integrating into the global financial system.

FINANCIAL INTEGRATION AND ENVIRONMENT IN AFRICA: THE ROLE OF OUTPUT GROWTH AND FOREIGN DIRECT INVESTMENT

As economies integrate financially and both investment and output increase, the environment may be affected depending on the nature of international financial resources attracted into the country. Hence, this study examines the effect of financial integration, output growth, and foreign direct investment (FDI) on the environment in selected African countries involving Nigeria, South Africa, Egypt, Algeria, and Angola between 1980 and 2017. The study uses carbon emissions and particulate emissions (PM) to proxy pollution and analyze the data through the fully modified ordinary least squares (FMOLS) technique. Empirical results show that financial integration worsens pollution in Egypt, Nigeria, Algeria, and in Africa; output growth deteriorates pollution in South Africa, Algeria, Angola, and in Africa; while FDI fuels environmental degradation in Egypt and South Africa. We recommend that African countries should strive to establish specific targets for lowering emissions even though the Kyoto Protocol did not set specific emissions reduction targets for them.

Is portfolio diversification possible in integrated markets? Evidence from South Eastern Europe

A remarkable process of financial integration has taken place throughout the world capital markets over the last decades. In line with this integration process, the effect of financial integration locally and/or globally has been one of the contemporary topics of interest to academics, practitioners as well as policy makers. In this study, we investigate the availability of portfolio diversification benefits after the initiation of the South Eastern Europe Link (the SEE Link) trading platform in 2016 as a connecting hub for stock markets in the South Eastern European region. Our empirical methodology is primarily based on various static and dynamic correlation (Dynamic Conditional Correlation-GARCH) and regression (Autoregressive Distributed Lag, Fully Modified Ordinary Least Squares, Dynamic Ordinary Least Squares, Markov Switching Regression Model and Kalman Filter Model) analyses. We employ our methods for a daily frequency stock exchange (namely, the Zagreb Stock Exchange and Bulgarian Stock Exchange) return data between January 4, 2005 and December 30, 2019. The findings reveal that the two stock exchanges have a significantly decreasing pattern of correlation and regression relationship over the sample period implying the existence of diversification opportunities in the SEE Link markets.

Financial Integration in Asia: A Macroeconomic Perspective

This study examines the effect of financial integration on growth, total factor productivity, and capital accumulation using a dynamic panel system‐GMM for a dataset consisting of 43 Asian economies from 1995 to 2015. The impact of de jure financial openness on output, productivity, and capital stock growth is significant, while the effect of de facto financial integration is fuzzy. The disaggregate asset classes (namely, inflows of foreign direct investment and debt) are found to facilitate higher output while derivative inflows yield an undesirable effect. For developing countries, financial openness significantly boosts productivity and capital accumulation while for less developed countries it only enhances productivity. The negative impact of the currency crisis on growth and capital accumulation is found to be significant for more open economies. The currency crisis is more prominent for developed economies, partially effective for less developed countries, and partially ineffective for developing economies in Asia.

Softening the blow: US state-level banking deregulation and sectoral reallocation after the China trade shock

U.S. state-level banking deregulation during the 1980’s mitigated the impact of the China trade shock (CTS) on local economies (states and commuting zones) a decade later, in the 1990s. Local economies, where local banking markets opened up earlier, were also effectively financially more integrated by the 1990’s and saw smaller declines in house prices, wages, and income following the CTS. We explain this pattern in a theoretical model that emphasizes the stabilizing effect of financial integration on demand for housing and on housing prices: faced with an adverse shock to their region’s terms-of-trade (i.e. the CTS), households in more open states can more easily access credit to smooth consumption. This stabilizes consumer demand for housing, keeps the relative price of housing up, stabilizes wages in the non-tradable sector and thus facilitates the sectoral reallocation of labor away from import-exposed manufacturing towards the housing sector. This in turn stabilizes income and consumption. We corroborate these predictions of our model in state- and commuting zone level data. Then, using granular bank-county-level data, we show that household consumption smoothing in response to the CTS was easier in financially open areas, because geographically diversified banks were more elastic in their lending response to household’s increased demand for credit. Our findings highlight that household access to finance is important to ease adjustment after asymmetric terms-of- trade shocks in monetary unions, in particular when the geographical mobility of labor is limited.

Financial Integration and Business Cycle Synchronization: Evidence from U.S. States

We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. To identify the causal effect of financial integration on business cycle synchronization, we exploit the staggered timing of the removal of restrictions to interstate banking to construct time-varying instrumental variables at the state-pair level. We find a strong positive effect of bilateral banking integration on the synchronization of economic activity between states, conditional on national shocks and state pair heterogeneity. This effect is stronger for states experiencing periods of financial turmoil and for industries that rely more on external financing. Furthermore, we find that integration increases the similarity of fluctuations in bank lending between states. Our findings are consistent with theories highlighting the role of banks in transmitting financial shocks across regions, and show that integration has increased output synchronization between U.S. states.

Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States

We analyze the effect of the geographic expansion of banks across U.S. states on the comovement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for more financially dependent industries. Finally, we show that integration (1) increases the similarity of bank lending fluctuations between states and (2) contributes to the transmission of deposit shocks across states.