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Are financial benefits of financial globalization questionable until greater domestic financial development has taken place?

  • Simplice A, Asongu

Purpose – The issue of which financial initial conditions are necessary to materialize the benefits of financial globalization remains open to debate in the literature. In this paper, we try to put some empirical structure on the concept of financial threshold conditions in order to give policymakers guidance on the Kose et al.(2011) and Henry(2007) hypothesis. Its object is to assess if financial benefits of financial globalization are questionable until greater domestic financial development has taken place in developing countries. Design/methodology/approach – In framing the financial dimension in a more concrete and tractable manner, we probe into the concerns of how domestic financial initial dynamics of depth(economic and financial systems), efficiency(banking and financial systems), activity (banking and financial systems) and size play-out in the financial development benefits of financial globalization. The estimation approach consists of assessing the impact of financial globalization through-out the conditional distributions of domestic financial development dynamics. Findings – The introduction of previously missing financial dimensions into the debate generates a number of important findings. Only financial initial(threshold) conditions in depth and size are necessary to materialize the benefits of financial globalization. Domestic dynamics of efficiency and activity(credit) do not confirm the hypothesis. Practical implications – Depending on the context of sampled countries, the appropriate role of policy has always been either to stem the tide of capital flows or encourage them. Policymakers who have been viewing their challenges exclusively from the later perspective for benefits in growth(finance) might be getting the financial dynamics badly wrong. Originality/value – Blanket financial development policies may not reap the financial benefits of financial globalization until domestic financial dynamics of depth, efficiency, activity and size are critically considered. The introduction of the last three previously missing components in the literature sheds more light on the globalization-development nexus.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37631.

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Date of creation: 25 Mar 2012
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Handle: RePEc:pra:mprapa:37631
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  1. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business.
  2. repec:srs:jarle2:1:v:2:y:2011:i:2:p:94-108 is not listed on IDEAS
  3. Kose, M. Ayhan & Prasad, Eswar & Taylor, Ashley D., 2009. "Thresholds in the Process of International Financial Integration," IZA Discussion Papers 4133, Institute for the Study of Labor (IZA).
  4. Asongu Simplice, 2011. "New financial intermediary development indicators for developing countries," Working Papers 11/005, African Governance and Development Institute..
  5. Simplice A., Asongu, 2011. "Law, finance, economic growth and welfare: why does legal origin matter?," MPRA Paper 33868, University Library of Munich, Germany.
  6. Billger, Sherrilyn M. & Goel, Rajeev K., 2009. "Do existing corruption levels matter in controlling corruption?: Cross-country quantile regression estimates," Journal of Development Economics, Elsevier, vol. 90(2), pages 299-305, November.
  7. Okada, Keisuke & Samreth, Sovannroeun, 2011. "The effect of foreign aid on corruption: A quantile regression approach," MPRA Paper 27969, University Library of Munich, Germany.
  8. Asongu Simplice, 2011. "Why do French civil-law countries have higher levels of financial efficiency?," Working Papers 11/011, African Governance and Development Institute..
  9. Asongu Simplice, 2012. "The political economy of development assistance: peril to government quality dynamics in Africa," Working Papers 12/008, African Governance and Development Institute..
  10. Asongu Simplice, 2011. "Finance and Democracy in Africa," Working Papers 11/020, African Governance and Development Institute..
  11. Simplice A., Asongu, 2011. "Law and finance in Africa," MPRA Paper 34080, University Library of Munich, Germany.
  12. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
  13. Simplice A, Asongu, 2012. "Reversed Economics and Inhumanity of Development Assistance in Africa," MPRA Paper 36542, University Library of Munich, Germany.
  14. Simplice A., Asongu, 2011. "Globalization, financial allocation efficiency and regional economic dynamics: asymmetric panel evidence from Africa," MPRA Paper 33901, University Library of Munich, Germany.
  15. Simplice Anutechia Asongu, 2012. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 4(2), pages 115-122, December.
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