Working Papers - details - WEF0044
WEF0044
Multiple Equilibria in the Dynamics of Financial Globalization
Danny Cassimon and Bjorn Van Campenhout
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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 benefits 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.