ABSTRACT
Standard economic theory predicts that international financial integration is a good thing. Financial markets allow for cross-country risk-sharing, increased investment, and a more efficient allocation of resources across countries. Extending financial market integration from a region comprising a small group of economies to a global arena encompassing all economies should offer welfare benefits to all countries and regions. Indeed, the rapid increase in capital flows across advanced and emerging economies in the last decade, often described as “the process of financial globalization,” has been associated with substantially higher economic growth rates, as well as large increases in the volume of international trade. Going beyond anecdotal evidence of the benefits of liberalized financial markets to establish clear empirical evidence on the growth of risk-sharing gains from financial integration has been more difficult, however. Kose et al. (2009) provide an extensive reviewof the empirical evidenceon the effects of financial integration, and conclude that there is no clear-cut evidence that financial integration is beneficial.
