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Conditions necessary for the sustainability of an emerging area: the importance of banking and financial regional criteria

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  • Céline Gimet

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

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    Abstract

    The last financial crises have revealed the vulnerability of many emerging countries. Yet, within an economically integrated area, some groups of countries have been spared the disastrous consequences of these crises. The purpose of this article is to underline the similarities between these countries in order to draw up a set of regional criteria that would protect an area against speculative attacks. Using a probit analysis, we show that the convergence of some banking and financial indicators towards reference levels guarantees theconfidence of international lenders, which in turn limits financial contagion. A narrow margin between the amount of external debt, in particular the short term debt of the country and a reference level constitutes a protection against the risk of illiquidity. Similarly, a low domestic credit in comparison with the international reserves of the economy is also an indicator of thesustainability of an area for international lenders. It is these factors that have ensured the stock exchange stability that some emerging areas have enjoyed during the different crisis episodes

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    File URL: http://halshs.archives-ouvertes.fr/docs/00/35/60/66/PDF/sustainability_of_an_emerging_area-2.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00356066.

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    Date of creation: 2007
    Date of revision:
    Publication status: Published, Journal of Multinational Financial Management, 2007, 17, 4, pp. 317-335
    Handle: RePEc:hal:journl:halshs-00356066

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00356066/en/
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    Related research

    Keywords: fundamental contagion; probit analysis; regional criteria;

    References

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    Cited by:
    1. Andrea Bonilla, 2014. "External vulnerabilities and economic integration. Is the Union of South American Nations a promising project ?," Working Papers halshs-00945044, HAL.

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