International financial integration: Measurement and policy implications

Colm Kearney

Journal of the Asia Pacific Economy, 1996, vol. 1, issue 3, 347-364

Abstract: This paper overviews work on the definition, measurement and implications of international financial integration. It first reviews the international parity relationships and three measures of the degree of international financial integration: namely, the savings‐investment correlation measure, the equalization of rates of return measure and the international capital market completeness measure. It points to the benefits of free international mobility of financial assets, including the facilitation of obtaining the gains from commodity and services trade, reducing risk, enabling the financing of high return investments and smoothing international consumption. It also points out the side effects including the relative effectiveness of alternative stabilization policies and their effects on savings and income distribution through their effects on the tax system. It concludes that free capital mobility is not a primal source of economic instability and policies aimed at restricting the free international mobility of financial capital may be difficult to implement and carry the risk of inducing firms to manage their international risks by reducing their exposures caused by international trade.

Date: 1996
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DOI: 10.1080/13547869608724596

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