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

John Nkwoma Inekwe, Maria Rebecca Valenzuela

Research output: Contribution to journalArticleResearchpeer-review

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.
LanguageEnglish
JournalWorld Economy
DOIs
Publication statusE-pub ahead of print - 14 Aug 2019

Fingerprint

capital movement
banking
incidence
Banking crisis
Capital flows
Financial integration
lending
loan
firm
market

Keywords

  • Banking Crisis
  • Capital Restrictions
  • Financial Markets
  • Financial Networks

Cite this

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title = "Financial integration and banking crisis: A critical analysis of restrictions on capital flows",
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.",
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Financial integration and banking crisis : A critical analysis of restrictions on capital flows. / Inekwe, John Nkwoma; Valenzuela, Maria Rebecca.

In: World Economy, 14.08.2019.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Valenzuela,Maria Rebecca

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AB - 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.

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KW - Capital Restrictions

KW - Financial Markets

KW - Financial Networks

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