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This paper assesses the impact of financial integration on financial development and establishes thresholds for materializing gains of financial advances from financial globalization using a sample of 34 countries from the East Asian and Pacific region. Following the approaches of Kose et al. (2011) and Asongu and De Moor (2016), we test non-linearity within the financial openness and financial development nexus through semi-parametric ordinary least-squares regression, and then, we develop threshold dynamics models. According to our findings, the effect of financial integration on financial development significantly changes across different financial inflows. When using external debt as a proxy for financial openness, there exists a robust significant inverted U-shaped relationship between financial integration and financial development. The empirical findings also suggest that the financial integration-development nexus is contingent on the level of trade openness, national income, and institutional quality. The results are robust to different measures of financial development and integration, the inclusion of other determinants of financial development, and considerations of endogeneity.

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ADBI Working Paper 950Phi et al. AbstractThe purpose of this paper is to empirically investigate the relationship between ownership identity and the performance of firms in terms of profitability and solvency. Using crosssectional data covering over 25,000 firms worldwide and by employing various empirical methods, we find robust support for the inferior performance of government enterprises over privately owned firms. Specifically, state-owned enterprises (SOEs) tend to be less profitable than private-owned enterprises. However, they appear to be more dependent on debt for their financial need and are, thus, better leveraged. Additionally, SOEs are more labor intensive and have higher labor costs. Thus, evidence from this study could be interpreted to mean that privatization could improve the performance of public firms. However, a study over a longer period is needed before these results can be considered conclusive. JEL Classification: G32, G341ADBI Working Paper 950 Phi et al.