ABSTRACT
Since the 1990s, most of the developing countries have embarked on a process of financial integration characterized by a reduction of impediments to crossborder financial transactions and an increased participation of foreign institutions in the domestic financial systems. Accompanying these developments, a growing amount of literature on this topic has emerged. In fact, several theoretical and empirical studies (Demirgüç-Kunt and Detragiache 1998; Galindo, Izquierdo and Rojas-Suarez 2009) have been elaborated to understand the process of international banking and financial shocks. These studies tackled major concerns related to relationship between these shocks on one hand and financial integration processes that are implemented by emerging and developing countries on the other. Their main focus is to consider that bank failures are in the center of recent economic and financial crises in emerging countries. From this perspective, the effects of financial integration on financial instability in emerging and developing economies have been largely analysed in the literature. It is observed that financial integration amplifies the impact of financial shocks on aggregate credit and interest rate fluctuations.
