Does financial openness lead to deeper domestic financial markets ?
AbstractAdvanced and emerging market economies have rapidly integrated into international capital markets and this growing globalization of financial markets has led to some important changes in the patterns of saving and investment across the world. The main goal of this paper is to test whether the cross-border asset trade has led to improvements in the intermediation of these savings -- that is, foster development of domestic financial markets. The authors have collected annual information on financial market development, financial openness, and other control variables for a sample of 145 countries for the period 1974-2007. Controlling for the likely endogeneity of financial openness, the analysis finds that rising financial openness expands private credit, bank assets, and stock market and private bond market development, and generates efficiency gains in the banking system. However, the impact of financial openness on domestic financial development may depend on the level of institutional quality, the extent of investor protection, and the degree of trade openness. In general, rising financial openness will enlarge the size and activity of financial intermediaries, improve efficiency in the banking system, and contribute to deepen private bond markets in countries with moderate to high levels of institutional quality and investor protection as well as in countries with high trade openness.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4973.
Date of creation: 01 Jun 2009
Date of revision:
Debt Markets; Emerging Markets; Economic Theory&Research; Currencies and Exchange Rates;
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Calderón, César & Kubota, Megumi, 2013.
"Sudden stops: Are global and local investors alike?,"
Journal of International Economics,
Elsevier, vol. 89(1), pages 122-142.
- Calderon, Cesar & Kubota, Megumi, 2011. "Sudden stops : are global and local investors alike ?," Policy Research Working Paper Series 5569, The World Bank.
- Edgar Demetrio Tovar García, 2012. "Financial globalization and financial development in Latin America," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
- Edgar Demetrio Tovar, 2011. "Globalización financiera y sus efectos sobre el desarrollo financiero," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.