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The external risks of financial integration for emerging economies

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  • Vincenzo Quadrini

    (University of Southern California, USA. CEPR, UK)

Abstract

The integration of emerging economies in world financial markets allowed these countries to import foreign capital. In some cases, however, the capital inflows have been interrupted by sudden reversals and severe financial crises. Although excessive borrowing is a necessary condition for a financial crisis, the dynamics leading to excessive borrowing and subsequent reversal can also be connected to external factors, that is, changes that take place in the rest of the world and are not under the control of the borrowing country (external risks). In this article I discuss some of these risks. In particular, I show how the growth of the financial sector in advanced economies can lead to the build up of imbalances that increase the financial fragility of emerging countries. I also discuss how the origin of the imbalances can sometimes be connected to the business cycle in industrialized countries.

Suggested Citation

  • Vincenzo Quadrini, 2017. "The external risks of financial integration for emerging economies," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(82), pages 18-24, April.
    • Handle: RePEc:bdr:ensayo:v:35:y:2017:i:82:p:18-24
    DOI: 10.1016/j.espe.2017.01.002
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    More about this item

    Keywords

    Movilidad del capital; Crisis financiera; Incumplimiento soberano;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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