Multiple equilibria in the dynamics of financial globalization

Multiple equilibria in the dynamics of financial globalization
Document type
Working Paper
Author(s)
Cassimon, Danny; Van Campenhout, Bjorn
Publisher
Birkbeck, University of London
Date of publication
1 September 2008
Series
World Economy & Finance Research Programme Working Paper Series
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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It is often argued that financial globalization involves threshold effects: countries should have a minimum level of preconditions in place before they can reap the benefits of financial integration. This paper investigates what this means for the dynamics of de facto financial globalization, using recently developed threshold and sample splitting methods. We find that there are indeed signs of multiple equilibria in the dynamics of financial integration. We confirm that the main cause for these non-linearities is the quality of the institutional context, as measured by corruption, investment profile, capital account balance and aggregate growth prospects. 

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