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Financial Services Trade, Capital Flow, and Financial Stability

Author

Listed:
  • Kono, M.
  • Schknecht, L.

Abstract

This study argues that trade policies regarding financial services are an important-but typically neglected- determinant of capital flows and financial sector stability. Financial services trade liberalisation which promotes the use of a broad spectrum of financial instruments and allows the presence of foreign financial institutions whilst not unduly restricting their business practices, results in less distorted and less volatile capital flows, and promotes financial sector stability. The study finds significant evidence in favour of this claim through an empirical analysis of GATS commitments in 27 emerging markets. Even countries where the financial system is weak, and where immediate, full-fledged financial sector liberalisation is not advisable, can open up certain types of financial services trade, as such trade strengthens the financial system without provoking destabilising capital flows.

Suggested Citation

  • Kono, M. & Schknecht, L., 1998. "Financial Services Trade, Capital Flow, and Financial Stability," Papers 98-12, Stanford - Institute for Thoretical Economics.
    • Handle: RePEc:fth:stante:98-12
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    Cited by:

    1. Dal Colle, Alessandra, 2018. "The mechanics of commercial banking liberalization and growth," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 194-203.

    More about this item

    Keywords

    FINANCIAL SERVICES ; INTERNATIONAL TRADE ; CAPITAL MOVEMENTS 1211 Geneva 21. Switzerland. 40p.;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F30 - International Economics - - International Finance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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