Determinants of financial stress in emerging market economies: Are spatial effects important?

Abstract

This study aims to analyse the determinants of financial stress and to show the impact of the spatial linkages between 13 emerging economies during 1996–2016. The 2007 Global Financial Crisis has once again showed that financial/economic turmoil of countries has negative effects on other economies. At this point, this study brings novelty to the existing literature by considering the effects of neighbour countries' macroeconomic variables on domestic financial stress and by focusing on financial stress interaction between emerging economies using spatial econometric methods. According to the estimation results, we find current account balance/GDP, economic growth, geopolitical risk and global risk are the most important determinants of financial stress. It is also observed that there is a strong interaction of financial stress among emerging market economies. While geographical linkage is the most important transmission channel of financial stress among those economies, financial and trade linkages also play an important role.

The dance of dependence: a macro-perspective on financial instability and its complex influence on the Euro-American green markets

“…Apergis et al. , 2019; Yurteri Kösedaglı and Önder, 2021; Benkraiem et al. , 2022), with a specific focus on the green stock market.…”

“…Furthermore, this paper advances knowledge of global financial contagion, a process in which significant and lasting financial shocks can spread from one country or market to another, regardless of their economic fundamentals (e.g. Yurteri Kösedaglı and Önder, 2021). Indeed, broadening our examination of the phenomenon of global financial contagion, we turn our attention specifically to the world's two largest green equity markets (Urom et al.…”

“…In addition to reducing local investment, financial instability can also have a negative impact on foreign investment through the channel of financial contagion (Kenourgios, 2014; Gaies and Nabi, 2021; Yurteri Kösedaglı and Önder, 2021). When a country experiences financial instability, such as a banking crisis or a sharp fall in the stock market, it creates a sense of panic and uncertainty that extends beyond its borders.…”

Geopolitical risks and financial stress in emerging economies

“…To overcome the weaknesses of linear models, though, some recent studies have used non-linear models. For instance, Kösedagli and Önder (2021) apply spatial modelling to examine the drivers of financial instability in emerging economies, finding that GPRs have a significant impact. In addition, Balcilar et al (2018) use quantile regression to explore the role of GPRs in stock market dynamics in the BRICS countries.…”