Financial Integration and Economic Crises

초록

This paper examines the relationship between international financial integration and economic crises. Types of economic crises examined in this paper include currency, banking, external debt, domestic debt, stock market and inflation crises. Economic theories do not provide a clear guidance on the relationship of financial integration with economic crises,which implies that this is an empirical question. This paper fits a panel data model for the period 1970-2010 and finds that the degree of integration is closely related to economic crises. The results show that the integration tends to increase the crisis probability in the short term but lower the crisis probability in the medium term. The results are, however,different across types of economic crises and income level. For example,for those high income countries, financial integration tends to increase the banking crisis probability both in the short and long term. Conversely,economic crises have affected the degree of integration in a significant way. Stock market crises tend to increase the degree of financial integration for both high income and middle income countries. For the other types of crises, however, economic crises tend to decrease the degree of financial integration.

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