Abstract
We investigate the effect of financial integration on a banking crisis. In contrast to existing works, we allow for capital restrictions while studying the impact of financial integration on a banking crisis. Using firm-level lending and borrowing information in the global market of syndicated loans; we generate aggregate measures of financial integration and examine how countries with capital flow restrictions thrive in the wake of a banking crisis. We concentrate on basic network measures of integration for a panel of 62 countries that allow for capital restriction at any time within the sample period. Financial integration increases the incidence of a banking crisis and capital restrictions worsen a banking crisis. However, capital restrictions reduce the negative impact of financial integration on the incidence of a banking crisis. Thus, financial integration becomes beneficial when countries allow for some forms of capital control.
Original language | English |
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Pages (from-to) | 506-527 |
Number of pages | 22 |
Journal | World Economy |
Volume | 43 |
Issue number | 2 |
Early online date | 14 Aug 2019 |
DOIs | |
Publication status | Published - Feb 2020 |
Keywords
- banking crisis
- capital restrictions
- financial markets
- financial networks