Global Financial Integration Research Articles

Editorial for the Special Issue of Comparative Economic Studies: 50 Years After the End of Bretton Woods—The Experiences of Small Open Economies

AbstractThis special issue of Comparative Economic Studies, commemorating fifty years since the end of the Bretton Woods system, examines the adjustment of small open economies to floating exchange rates and new monetary policy frameworks. Based on a workshop held at the KOF Swiss Economic Institute in June 2023, six papers analyse dimensions such as the evolution of monetary policy regimes, the impact of economic crises and the use of unconventional monetary policies in Canada, Israel, Norway, Sweden and Switzerland. The findings highlight the benefits and limitations of inflation targeting, the challenges of global financial integration and the strategic responses of central banks to maintain stability and independence, providing policymakers with valuable insights into the complex dynamics of monetary policy in the post-Bretton Woods era.

Monetary Policy and Bank Risk-taking

As the process of global financial integration deepens, the relationship between bank risk-taking and monetary policy has become increasingly close. In recent years, financial markets have been highly volatile and banking risks have become increasingly prominent. Against this background, the relationship between monetary policy and bank risk-taking in China is studied through both theoretical and empirical evidence, and corresponding policy recommendations are put forward. In addition, the role mechanism of monetary policy affecting bank risk is deeply explored through the theoretical aspect of monetary policy and bank risk capacity bearing, and the theoretical basis for the formulation of related policies is provided. Therefore, it explores the impact of bank risk on the transmission mechanism of monetary policy from the theory, and further improves the theory of monetary policy transmission to enhance the effectiveness and stability of monetary policy. The article analyzes and discusses the impact of monetary policy on bank risk-taking capacity, to provide a reference for the development of the financial industry.

Monetary Policy Challenges and Strategies in the Globalization: An Analysis of the Federal Reserve's Approach to the Trilemma

This study explores the Federal Reserve's (Fed's) approach to the financial trilemma in the era of globalization, emphasizing the trade-offs between monetary policy autonomy, exchange rate flexibility, and open capital markets. It delves into the challenges posed by increased global financial integration and the effectiveness of traditional and innovative monetary tools. The paper advocates for the adoption of a macroprudential policy framework to enhance financial system stability without compromising policy objectives. The findings highlight the Fed's strategic use of macroprudential measures alongside conventional tools to navigate the trilemma, illustrating the importance of flexibility and innovation in central banking practices amidst global financial complexities.

The heterogeneous impacts of environmental technologies and research and development spending on green growth in emerging economies: the moderating role of financial globalization

Introduction: Understanding the heterogeneous impacts of environmental technologies (ETs), research and development (RD) spending and financial globalization (FG) on green economic growth (GEG) is worthwhile to promote progress toward GEG. Besides, exploring the moderating role of FG is essential to uncover the nuanced dynamics that shape the relationship between ET, RD, GEG, and the influence of global financial integration. Thus, this study examines the effects of ET, RD and FD on GEG in emerging market economies (EMEs). In addition, we investigate the moderating role of FG on the effects of ETs and RD on GEG.Methods: The method of moments quantile regression (MMQR) is applied using a fixed effects model that can capture distributional heterogeneity and nonnormality concerns for the panel of 25 EMEs from 2000 to 2019. In addition, other alternative models are applied to conduct robustness analysis. We use green total factor productivity (GP) to proxy for GEG using the Malmquist–Luenberger Productivity Index (MLPI) strategy based on the directional distance function (DDF).Results and discussion: The findings imply that ETs significantly impact GEG, revealing evidence that promoting environmental innovation positively contributes to GEG progress in EMEs. Likewise, RD promotes GEG progression in EMEs. Additionally, FG positively impacts GEG. FG also positively moderates the effects of ETs and RD on GEG, implying that countries open to FG can better harness the positive roles of investment in ETs and RD on GEG in EMEs. Therefore, policymakers should develop prudent policies to encourage ETs and RD to promote GEG in EMEs, which aligns with the goals of controlling climate variation (SDG-13) and fostering innovation (SDG-9) to promote GEG in EMEs.

A Comparative Analysis of the Development Status of China-U.S. Stock Markets from the Perspective of Neo-Realism

The relationship between China and the United States has undergone great changes, from cooperation to competition or even confrontation. It is of great significance to analyze the relationship between them from the perspective of neo-realism. With the deepening of global financial integration and the gradual opening up, the volatility transmission among stock markets in various countries has become more and more obvious. The stock market has become an important part of China's financial system, which is of great significance to improve the efficiency of capital operation and reduce the financing cost of enterprises. And the United States and China have formulated their stock market policies based on neo-realism. The United States needs to face up to China's economic strength and safeguard its interests through global financial hegemony. China needs to face up to the reality and enhance the global financial influence in order to safeguard its stock market.

Kırılgan Piyasa Ekonomileri Arasında Döviz Kurları Yakınsıyor mu? LM ve RALS-LM Birim Kök Testlerinden Yeni Kanıtlar

Global financial integration causes the economic consequences of economic crises, wars, or pandemics to be felt more in developing countries and triggers high exchange rate volatilities in these economies. In such an integrated financial environment, it is an interesting research domain how and why the exchange rate volatilities of countries are not affected similarly but tend to diverge from each other. This study investigates whether the exchange rate volatilities of fragile market economies converge in the stochastic convergence framework. To answer this question, we analyzed the stochastic behavior of the series using the traditional and structural break unit root tests besides RALS unit root tests, which consider the information of non-normal errors. The discussions regarding the size and power properties of test procedures in the unit root testing literature have formed a crucial part of the implications of the test results. In light of these discussions, we conclude that the stochastic convergence assumption is valid for Brazil, South Africa, India, and Hungary, whereas it is not valid for Argentina, Mexico, and Türkiye. The policy implications of our findings are that fragile market economies have different fragility levels among themselves and countries with high fragility levels show higher volatility than others.

Income distribution and sustainable development nexus: Fostering poverty reduction and integrated sustainability amidst multi-dimensional regional integration

This study investigates the impact of income distribution as poverty reduction on sustainable development (SD), by taking the moderating role multidimensional regional integration (MRII) in fostering the integrated sustainability across 64 Belt and Road Initiative (BRI) countries from 2005 to 2020. Utilising Sys-GMM methodology, the findings support the notion that countries within the BRI are theoretically aligned with a sustainable development path as suggested by economic theory. Moreover, MRII significantly contributes to the integrated sustainability path. The direct channel analysis reveals a negative yet significant effect of income distribution on sustainable development, indicating an increase in disparity and capital management system. Conversely, the indirect channel suggests a reduction in disparity and regionally integrated BRI boost the sustainable poverty reduction. This study identifies positive contributions from macroeconomic conditions, institutional quality, and population size to BRI countries' sustainable development. Additionally, it suggests the inefficient utilisation of resources by BRI countries, particularly in government consumption. The study underscores the need for enhanced regional policies aimed at increasing income and reducing poverty to foster sustainable development. Upcoming research should investigate the unexplored effects of household consumption, financial inclusion, financial aid, and energy poverty influence on integrated sustainability, regarding global financial integration.

Global Financial Market Integration: A Literature Survey

This article undertakes a literature review on the topic of market integration, covering over 380 articles from the 1980s to 2024. The review consists of a qualitative analysis for context and a quantitative analysis for content, identifying key research streams and proposing directions for future research. I have identified six research groups: (1) market segmentation, (2) portfolio diversification, (3) market integration evidence from developed and emerging markets, (4) spillovers and linkages, (5) economic market integration, and (6) financial market integration and volatility. The literature focuses on market integration; it aims to answer the following questions: (1) What is the scope of market integration research? (2) What are the direct influences of market integration looking at top journals and authors and characteristics of most studied and cited topics? (3) What are the past and recent topics studied within the area of market integration? (4) What are the potential future research questions to explore in market integration? The topic of market integration has been controversial in many studies, as seen in policy decision-making, investments, and other related areas; this literature will provide great benefit for such an audience.

The Impact of U.S. Quantitative Easing Policy on the Domestic Economic Cycle Based on HP Filtering

With the deepening of global economic integration, the trend of global trade and financial integration is increasing in parallel, while the degree of interconnectedness and mutual influence among national economies is also increasing. This paper uses HP Filtering method and Granger Causality Test to verify and analyze the effect of quantitative easing policy on economic cycle based on CPI and PPI data. After the comparative analysis, it is concluded that after the implementation of quantitative easing policy, the economic cycle of the United States is less volatile and more stable. And the time in the boom period is significantly extended. However, the speed of recession begins to accelerate after the increase in magnitude. Therefore, the quantitative easing policy is a strong agent, which has a strong effect on economic stability and growth, but it also brings non-negligible after-effects. Countries should pay attention to the reasonable and appropriate use, otherwise it will trigger larger economic fluctuations which bring economic crisis.

Development of innovative financial instruments and their impact on global financial markets

Today, global financial markets play a key role in improving the efficiency of the global economic system, as they facilitate the rapid redistribution of financial resources at the global level and help direct investments to certain regions and types of economic activity. The purpose of the paper is to study the development of innovative financial instruments and determine their impact on global financial markets. According to this goal, the study has the following tasks: to reveal the essence and components of the global financial market, to determine their role in global financial markets, to develop a classification of innovative financial instruments traded in the financial market, and to propose a periodization of the development of innovative financial instruments. The study was conducted using general scientific methods of cognition. A critical analysis of scientific papers and other sources related to the development of innovative financial instruments and their impact on global financial markets was conducted. Inductive and deductive methods were used to systematize innovative financial instruments in the economic environment over a certain period. Data from various sources were summarized, classified and analyzed to identify patterns of development of innovative financial instruments. The study addresses the relevance of the topic through a number of specific issues, namely: the relationship between financial instruments and the competitiveness of enterprises in financial markets, the development of modern financial technologies, and global financial integration. The object of the study is the global financial market, which operates under conditions of uncertainty and variability. The subject of the study is innovative financial instruments traded in global financial markets. It has been determined that the current economic literature is full of theoretical and empirical data proving that the introduction of innovations in the financial sector has a positive impact on the dynamics of financial markets. It has also been determined that there is some confusion as to which instruments should be classified as "innovative" financial instruments. The study developed a classification of types of innovative financial instruments and offered its own view on the stages of development and formation of innovative financial instruments.

Global financial integration, governance-by-technology, and green growth

This study determines the influence of governance-by-technology (including the e-governance index and governance index) and socio-cultural factors (including sociocultural integration and household consumption per-capita) on inclusive green growth (IGG) with the moderating effect of global financial integration. Government expenditures and poverty were used as control variables. This study used the data of 64 Belt and Road initiative (BRI) partner countries from 2005 to 2020, which was analysed using the two-step system GMM (the generalized method of moments). The results was analysed using the two-step system GMM (the generalized method of moments) and validated through the D-K regression, 2SLS and dynamic fixed-effect robustness methods. Outcomes indicated that global financial integration positively moderates the relationship between governance-by-technology and IGG. Therefore, it can be stated that global financial integration, e-governance index, governance index, and sociocultural integration endorse IGG. The findings of this study contribute to the existing literature by providing new insights into inclusive green development, governance, technology, and socio-cultural integration. This study also encourages policymakers and institutions to focus on governance, e-governance, socio-cultural factors, and financial integration to boost inclusive green growth in the BRI region.

The impact of regulatory quality on deepens level of financial integration: Evidence from the European Union countries (NMS-10)

Abstract This study seeks to empirically explore whether the regulatory quality in the NMS-10 impacts deepening international financial integration and whether the strengthening of regulatory quality for NMS-10 has a causal effect on the level of international financial integration (IFI) in NMS-10. The study covers NMS-10 between 1995 and 2020. The estimation of parameters was made with descriptive statistics, the Breusch-Pagan test, the Pesaran test, the Granger causality test, and OLS regression to analyze the impact of REQ on IFI. The findings of the study reveal that regulatory quality has a statistically significant effect in deepening the process of financial integration for both periods, in the pre-accession and post-accession EU process. In addition, the results demonstrate that the regulatory quality of NMS-10 provides sound laws and policies that support the business environment, encourage cross-bordering financial transactions. Moreover, the results of the Granger causality test show that the level of global financial integration is causally impacted by the improvement in NMS-10 regulatory quality. This indicates that regulatory effectiveness might predicts international financial integration.

Volatility spillover and hedging strategies between the European carbon emissions and energy markets

Much attention has been paid to the complex risk transmission between carbon and energy markets along with the increasing global financial market integration. This research thus uses the DCC-MVGARCH model and spillover index method to investigate volatility linkages between the European carbon emissions and energy markets. The results make it clear that there are indeed volatility correlations and bidirectional spillover effects for the above two markets. In particular, the volatility correlations and the spillover index dramatically change when global economic turbulence and political events occur. Apart from the strongest volatility correlation between coal and carbon markets, the volatility spillover effect from the renewable energy market to the carbon market is gradually increasing. The role of the carbon market is also changing: the net information recipient becomes a transmitter from phase II to phase IV. Therefore, our findings provide investors with flexible portfolio strategies by making full use of dynamic volatility linkages between the two markets. This research also gives a decision-making basis for market regulators to improve the carbon market's risk management mechanism. It means that regulators should pay close attention to potential market risk sources. Further policy recommendations are put forward in the conclusion section.

Environmental agenda and priorities for integration cooperation in the development of financial technologies at the global and national levels

The active application of financial technologies in the processes of international financial integration actualises the search for the formation of national models of financial technology development, ensuring sovereignty with effective international cooperation. Considering the forms and directions of relations coordination at the level of emerging alliances of national models of fintech development, the article analyses the directions and forms of coordination in the sphere of financial technology development at the level of interstate unions, alliances and coalitions, and systematises the priorities of integration cooperation in the sphere of fintech. Based on the ways of participation in the processes of global financial integration, the study establishes strategic alternatives for the formation and development of national models, conditioned by approaches to the management of fintech development at the national level, on the basis of which the prospective priorities of the Russian segment of the development of financial technology are presented at the intersectoral and international levels.

The spillover effect of international monetary policy on China's financial market

<abstract> <p>This study analyzes the impact of global financial integration and monetary policies from the United States, European Union and Japan on China's financial markets post-pandemic. Using TVP-FAVAR (Time-Varying Parameter Factor Augmented Vector Autoregression) and TVP-VAR-DY (Time-Varying Parameter Vector Autoregression DY) models, a Chinese financial market stress index was developed, showing that developed nations' monetary policies influence China's financial stress. The impact varies based on the economy's size and policy effectiveness. The spillovers occur mainly through accelerated short-term capital flows and foreign exchange reserve fluctuations. These effects have evolved over two decades, particularly noticeable during economic crises and the COVID-19 pandemic, highlighting the need for emerging economies, like China, to protect against international financial spillovers.</p> </abstract>

Financialization goes South: Foreign capital flows and financial accumulation in emerging markets

Has global financial integration allowed firms in the so-called “Global South” to profit from financial activity? Financialization researchers have either neglected these countries and the international economic order in general or neglected firm-level dynamics, a broad sample of emerging markets, and a theoretical and historical explanation for this trend. I attempt to fill these gaps using data on all non-financial corporations across 31 emerging market economies to answer this question. To theorize and explain the recent historical origins of this process in a more sociological and global lens, I draw on the work of Giovanni Arrighi. My results show that financial inflows, but not outflows, increase financial accumulation in Global South firms—specifically short-term investments and cross-border lending. Moreover, nearly all financial income is generated by the largest firms. These results help explain how financial power undermines development in the Global South yet simultaneously empowers local economic elites who benefit from financial integration.

Belt and Road Initiative: A Debate in Context with the New World Order with Chinese Characteristics

The existing global governance system in which an unparalleled growth of China is exceedingly constrained and overwhelmed by the US and its allies. President Xi’s all-encompassing foreign policy such as the Belt and Road Initiative (BRI) primarily seeks out to develop the much-needed infrastructure, global financial integration and trade liberalisation. This paper examines the impression of China’s initiative, such as BRI on the global governance system—an area in which China has gradually expanded its input. Inspired from China’s historical prestige and ideology, Chinese institutions present three significant challenges to the existing world order; (i) the emerging non-western ideology, (ii) the non-western multilateralism, and (iii) the introduction of diversity and equality in international relations. The paper concludes that China’s unprecedented economic growth coupled with its assertive foreign policy means an alternative global governance system is emerging with Chinese characteristics.

House price decoupling in East Asia and the Pacific: Trilemma versus dilemma revisited

This paper investigates the extent to which local property prices co-move with global property prices for selected East Asia and the Pacific (EAP) economies. Having documented the existence of house price synchronicity, the main focus of the paper is on the extent to which global financial integration in the housing markets in the EAP economies is characterized by the monetary trilemma versus dilemma proposition. The paper finds that capital controls possess effective insulating properties while exchange rate flexibility does not, offering some evidence in favor of the dilemma rather than the trilemma. The paper also finds that borrower-based macroprudential policies can reduce synchronicity when capital accounts are open.

The impact of economic freedom on the risk-taking behaviours of Vietnamese commercial banks

This paper investigates the impact of economic freedom and its sub-components on bank risk-taking behaviour in the context of Vietnam. We utilise the generalised method of moments (GMM) for a sample of 22 commercial banks during the period from 2006 to 2020. The economic freedom indicator is collected from the annual publication of The Heritage Foundation. The results reveal that economic freedom will increase bank stability, which is also enhanced by monetary freedom, financial freedom, and investment freedom. Nevertheless, the higher the business freedom index is, the more probable the bank can face risks. High economic growth and low inflationary control also improve bank stability. Besides, some internal banking factors, such as size, diversification, and operating expense control, also affect the risk-taking behaviour of Vietnamese banks. The result underpins the precise policies of the Vietnamese government in promoting global economic and financial integration along with boosting the efficiency in management and scrutiny of state-owned institutions.

Financial Integration in the Context of the European Union

As the world continues to see various facets of financial integration, the topic has sparked a great deal of discussions among policymakers and economists. The article analyzes benefits and risks of financial integration in the context of the European Union, which has facilitated global financial integration immensely by creating common currency among European Monetary Union countries and harmonizing regulations across the region. Upon examining main pros and cons of financial integration in detail, I conclude that financial integration can be beneficial in the longrun if corrective and preventive measures are enforced to curtail risks and threats it poses.