Multiple Equilibria in the Dynamics of Financial Globalization

Danny Cassimon and Bjorn Van Campenhout

No 44, WEF Working Papers from ESRC World Economy and Finance Research Programme, Birkbeck, University of London

Abstract: It is often argued that financial globalization involves threshold effects - countries should have a minimum level of preconditions in place before they can reap the benets of financial integration. We investigate what this means for the dynamics of de facto financial globalization, using recently developed threshold and sample splitting methods. We find that there are indeed signs of multiple equilibria in the dynamics of financial integration. We confirm that the main cause for these non-linearities is the quality of the institutional context, as measured by corruption, investment profile, capital account balance and aggregate growth prospects.

Keywords: financial globalization; multiple equilibria; threshold conditions; institutions (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-opm
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