Does Financial Openness Lead to Deeper Domestic Financial Markets?

Advanced and emerging market economies have rapidly integrated into international capital markets and this growing globalization of financial markets has led to some important changes in the patterns of saving and investment across the world. The main goal of this paper is to test whether the cross-border asset trade has led to improvements in the intermediation of these savings -- that is, foster development of domestic financial markets. The authors have collected annual information on financial market development, financial openness, and other control variables for a sample of 145 countries for the period 1974-2007. Controlling for the likely endogeneity of financial openness, the analysis finds that rising financial openness expands private credit, bank assets, and stock market and private bond market development, and generates efficiency gains in the banking system. However, the impact of financial openness on domestic financial development may depend on the level of institutional quality, the extent of investor protection, and the degree of trade openness. In general, rising financial openness will enlarge the size and activity of financial intermediaries, improve efficiency in the banking system, and contribute to deepen private bond markets in countries with moderate to high levels of institutional quality and investor protection as well as in countries with high trade openness.

Bibliographic Details

Main Authors:	Calderón, César, Kubota, Megumi
Language:	English
Published:	2009-06-01
Subjects:	ACCOUNTING, ACCOUNTING STANDARDS, ACCUMULATION OF DEBT, ADVANCED COUNTRIES, ADVERSE SELECTION, AGENCY PROBLEMS, ASSET HOLDINGS, BAILOUT, BALANCE SHEETS, BANK ASSETS, BANK CREDIT, BANK CREDITS, BANK DEPOSIT, BANK DEPOSITS, BANK LOANS, BANK POLICY, BANKING CRISIS, BANKING SECTOR, BANKING SYSTEM, BANKING SYSTEMS, BOND MARKET, BOND MARKET CAPITALIZATION, BOND MARKET DEVELOPMENT, BOND MARKETS, BONDS, BOOM-BUST CYCLES, BUREAUCRATIC QUALITY, CAPITAL ACCOUNT, CAPITAL ACCOUNTS, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MARKET, CAPITAL MARKET LIBERALIZATION, CAPITAL REQUIREMENTS, CAPITAL STRUCTURE, CENTRAL BANK, CENTRAL BANKS, CIVIL CODE, COMMERCIAL BANK, COMMERCIAL BANKING, COMMERCIAL BANKS, COMMON LAW, CONSUMER PRICE INDEX, CONTRACT ENFORCEMENT, COST OF CAPITAL, COUNTRY RISK, CREDITOR, CREDITORS, CURRENCY, CURRENCY CRISIS, DEBT, DEFAULT RATES, DEPOSIT, DEPOSIT INSURANCE, DEPOSIT MONEY BANKS, DEPOSITS, DERIVATIVES, DEVELOPING COUNTRIES, DOMESTIC BANKING, DOMESTIC BANKING MARKETS, DOMESTIC BOND, DOMESTIC BOND MARKETS, DOMESTIC CAPITAL, DOMESTIC CAPITAL MARKETS, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC DEBT SECURITIES, DOMESTIC ECONOMY, DOMESTIC FINANCIAL MARKET, DOMESTIC FINANCIAL MARKETS, DOMESTIC MARKET, DUMMY VARIABLES, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKET FIRMS, EMERGING MARKETS, ENFORCEMENT MECHANISMS, EQUITY MARKETS, EXCHANGE RATE, EXCHANGE RATES, EXTERNAL ASSET, EXTERNAL ASSETS, EXTERNAL FINANCE, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE SYSTEM, FINANCIAL ASSETS, FINANCIAL CONTRACTS, FINANCIAL CRISES, FINANCIAL DEREGULATION, FINANCIAL DEVELOPMENT, FINANCIAL FLOWS, FINANCIAL INFRASTRUCTURE, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL LIBERALIZATION, FINANCIAL MARKET, FINANCIAL MARKET DEVELOPMENT, FINANCIAL OPENNESS, FINANCIAL SECTOR, FINANCIAL SECTOR DEVELOPMENT, FINANCIAL SERVICES, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FOREIGN ASSET, FOREIGN BANKS, FOREIGN DIRECT INVESTMENT, GLOBAL ECONOMY, GLOBALIZATION, GROWTH RATES, INCOME LEVEL, INCOME LEVELS, INDUSTRIAL COUNTRIES, INFLATION, INFLATION RATE, INFLATION RATES, INFORMATION ASYMMETRY, INFORMATION DISCLOSURE, INSTITUTIONAL DEVELOPMENT, INSTRUMENT, INSURANCE COMPANIES, INSURANCE PENETRATION, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL INTEGRATION, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL INVESTMENT, INTERNATIONAL MARKETS, INTERNATIONAL TRADE, INVESTOR PROTECTION, LIABILITY, LIFE INSURANCE, LIFE INSURANCE CONTRACTS, LIFE INSURANCE PREMIUM, LINES OF CREDIT, LIQUIDITY, LIQUIDITY PROBLEMS, LOAN, LOCAL CURRENCY, LOCAL DEBT, LOCAL DEBT MARKETS, LOCAL FINANCIAL MARKETS, LOCAL MARKETS, LOCAL STOCK MARKET, LOCAL STOCK MARKETS, MACROECONOMIC STABILITY, MARKET DATA, MARKET DEPTH, MARKET DEVELOPMENT, MARKET TURNOVER, MARKET VALUE, MINORITY SHAREHOLDER, MINORITY SHAREHOLDER PROTECTIONS, MONETARY FUND, MORAL HAZARD, NATIONAL STOCK EXCHANGES, NON-PERFORMING LOANS, OPEN ECONOMIES, OVERHEAD COSTS, POLITICAL ECONOMY, POLITICAL RISK, POOL OF FUNDS, PORTFOLIO, POSITIVE COEFFICIENT, PRIVATE BOND, PRIVATE CREDIT, PRIVATE DOMESTIC DEBT, PRIVATE PROPERTY, PROPERTY RIGHTS, PROTECTION OF INVESTORS, PUBLIC MARKET, REAL EXCHANGE RATE, REGULATORY FRAMEWORK, REMITTANCES, RESERVE, RESERVES, RISKY ASSETS, RULE OF LAW, SAVINGS, SHARE OF ASSETS, SHARE OF EQUITY, SHAREHOLDER, SHAREHOLDER RIGHTS, SHAREHOLDERS, STOCK EXCHANGE, STOCK MARKET, STOCK MARKET BUBBLES, STOCK MARKET CAPITALIZATION, STOCK MARKET DEVELOPMENT, STOCK MARKET DEVELOPMENTS, STOCK MARKETS, STOCKS, TRADE LIBERALIZATION, TRADING, TRANSPARENCY, VOLATILE CAPITAL, WORLD FINANCIAL MARKETS,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090619153305 https://hdl.handle.net/10986/4166
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