Financial integration, credit market imperfections and consumption smoothing

Leblebicioğlu, Aslı

doi:10.1016/j.jedc.2008.06.006

Cited by 25 publications

(70 citation statements)

References 28 publications

(25 reference statements)

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“…These findings on the cross-country comovement of output and consumption complement the results on the effects of financial integration on consumption and output volatility and 18 A number of recent theoretical papers have attempted to explain the positive association between financial integration and the relative volatility of consumption growth documented by Kose, Prasad, and Terrones (2003b). For instance, Levchenko (2004) and Leblebicioglu (2006) consider dynamic general equilibrium models where only some agents have access to international financial markets. In both models, capital account liberalization leads to an increase in the volatility of aggregate consumption since agents with access to international financial markets stop participating in risksharing arrangements with those who do not have such access.…”

Section: V3 Comovementmentioning

confidence: 99%

Financial Globalization: A Reappraisal

Köse¹,

Prasad²,

Rogoff³

et al. 2009

IMF Staff Pap

623

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The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. There is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, but the macroeconomic evidence remains inconclusive. At the same time, some studies argue that financial globalization enhances macroeconomic stability in developing countries, but others argue the opposite. This paper attempts to provide a unified conceptual framework for organizing this vast and growing literature, particularly emphasizing recent approaches to measuring the catalytic and indirect benefits to financial globalization. Indeed, it argues that the indirect effects of financial globalization on financial sector development, institutions, governance, and macroeconomic stability are likely to be far more important than any direct impact via capital accumulation or portfolio diversification. This perspective explains the failure of research based on cross-country growth regressions to find the expected positive effects of financial globalization and points to newer approaches that are potentially more useful and convincing. IMF Staff Papers (2009) 56, 8–62. doi:10.1057/imfsp.2008.36

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Section: V3 Comovementmentioning

confidence: 99%

Financial Globalization: A Reappraisal

Köse¹,

Prasad²,

Rogoff³

et al. 2009

IMF Staff Pap

623

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“…Hereafter we use 1. Recent models of financial integration with frictions includeBuch and Pierdzioch (2003) andLeblebicioglu (2005).…”

mentioning

confidence: 99%

Financial Integration, Macroeconomic Volatility, and Welfare

Evans

Hnatkovska

2007

Journal of the European Economic Association

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This paper studies the effects of financial integration on macroeconomic volatility and welfare. We examine a two‐sector (tradable and nontradable), two‐country world economy with production in which both stocks and bonds are traded internationally, but markets are incomplete. The effects of integration are examined by comparing the equilibrium properties of the model under three financial configurations: autarky, low integration, and high integration. The model predicts a non‐monotonic relationship between the degree of financial integration and the volatility of several macroeconomic variables. Greater integration is initially associated with more volatile consumption and output, but as integration proceeds further volatility declines. We also find that although increased integration allows for significantly greater risk sharing between countries, the improvement in welfare can be very small. (JEL: D52, E20, F41)

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“…For example, Bekaert et al (2005) and Hammel (2006) find that growth following equity market liberalizations (which allow foreign investors to invest in domestic stock markets) is higher for countries with higher private credit/stock market turnover and stock market capitalization, respectively. 32 31 For instance, Levchenko (2005) and Leblebicioglu (2006) consider dynamic general equilibrium models where only some agents have access to international financial markets. In both models, capital account liberalization leads to an increase in the volatility of aggregate consumption since agents with access to international financial markets stop participating in risk-sharing arrangements with those who do not have such access.…”

Section: Empirical Evidencementioning

confidence: 99%

Financial Globalization and Economic Policies

et al. 2009

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Financial Globalization and Economic Policies *We review the large literature on various economic policies that could help developing economies effectively manage the process of financial globalization. Our central findings indicate that policies promoting financial sector development, institutional quality and trade openness appear to help developing countries derive the benefits of globalization. Similarly, sound macroeconomic policies are an important prerequisite for ensuring that financial integration is beneficial. However, our analysis also suggests that the relationship between financial integration and economic policies is a complex one and that there are unavoidable tensions inherent in evaluating the risks and benefits associated with financial globalization. In light of these tensions, structural and macroeconomic policies often need to be tailored to take into account country specific circumstances to improve the risk-benefit tradeoffs of financial integration. Ultimately, it is essential to see financial integration not just as an isolated policy goal but as part of a broader package of reforms and supportive macroeconomic policies.JEL Classification: F02, F21, F36, F4

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Financial integration, credit market imperfections and consumption smoothing

Cited by 25 publications

References 28 publications

Financial Globalization: A Reappraisal

Financial Globalization: A Reappraisal

Financial Integration, Macroeconomic Volatility, and Welfare

Financial Globalization and Economic Policies

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