Financial integration and banking crisis. A critical analysis of restrictions on capital flows

John Nkwoma Inekwe, Maria Rebecca Valenzuela

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

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 languageEnglish
Pages (from-to)506-527
Number of pages22
JournalWorld Economy
Volume43
Issue number2
Early online date14 Aug 2019
DOIs
Publication statusPublished - Feb 2020

Keywords

  • banking crisis
  • capital restrictions
  • financial markets
  • financial networks

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