International financial integration and financial stress of emerging market economies: The role of institutional quality

Sook-Rei Tan, Xiu Wei Yeap and Changtai Li

Emerging Markets Review, 2024, vol. 63, issue C

Abstract: In the wake of unprecedented financial liberalization policies adopted by Emerging Market Economies (EMEs) since the late 20th century, their integration into global financial markets has brought forth both opportunities and challenges. This paper endeavors to assess the intricate relationship between international financial integration (IFI) and financial stress in EMEs, focusing on the potential moderating effect of institutional quality. Addressing key questions, it examines how various IFI indicators impact financial stress and evaluates the role of different dimensions of institutional quality in influencing this relationship. Using a Financial Stress Index (FSI) and employing the panel threshold regression technique, the study unveils significant threshold effects of institutional quality on the IFI-FSI nexus, with variations across different institutional factors. This study underscores the vital need for policymakers to identify threshold levels in institutional quality indicators to strike a balance between attracting investments and preventing unwarranted financial distress.

Keywords: Financial stress index; International financial integration; Emerging market economies (search for similar items in EconPapers)
JEL-codes: F1 F3 F4 F6 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:63:y:2024:i:c:s1566014124001092

DOI: 10.1016/j.ememar.2024.101214

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