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Financial services trade, capital flows, and financial stability

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  • Kono, Masamichi
  • Schuknecht, Ludger

Abstract

This study argues that trade policies regarding financial services are an important - but typically neglected - determinant of capital flows and financial sector stability. Financial services trade liberalisation which promotes the use of a broad spectrum of financial instruments and allows the presence of foreign financial institutions whilst not unduly restricting their business practices, results in less distorted and less volatile capital flows, and promotes financial sector stability. The study finds significant evidence in favour of this claim through an empirical analysis of GATS commitments in 27 emerging markets. Even countries where the financial system is weak, and where immediate, full-fledged financial sector liberalisation is not advisable, can open up certain types of financial services trade, as such trade strengthens the financial system without provoking destabilising capital flows.

Suggested Citation

  • Kono, Masamichi & Schuknecht, Ludger, 1999. "Financial services trade, capital flows, and financial stability," WTO Staff Working Papers ERAD-98-12, World Trade Organization (WTO), Economic Research and Statistics Division.
    • Handle: RePEc:zbw:wtowps:erad9812
    DOI: 10.30875/d178ba3d-en
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    Cited by:

    1. Sonsoles Gallego & Alicia García Herrero & Jesús Saurina, 2002. "The Asian and European Banking Systems: The Case of Spain in the Quest for Develpoment and Stability," Working Papers 0217, Banco de España.
    2. Sasidaran Gopalan, 2015. "Financial Liberalization and Foreign Bank Entry in Emerging and Developing Economies: What Does the Literature Tell Us?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-25.
    3. Ali, Amjad, 2022. "Determining Pakistan's Financial Dependency: The Role of Financial Globalization and Corruption," MPRA Paper 116097, University Library of Munich, Germany.
    4. Mr. Jong-Kun Lee & Mr. Biaggio Bossone, 2002. "In Finance, Size Matters," IMF Working Papers 2002/113, International Monetary Fund.
    5. Buch, Claudia M. & Golder, Stefan M., 2000. "Domestic and Foreign Banks in Germany: Do They Differ?," Kiel Working Papers 986, Kiel Institute for the World Economy (IfW Kiel).
    6. Lupo Pasini, Federico, 2012. "The International Regulatory Regime on Capital Flows and Trade in Services," ADBI Working Papers 338, Asian Development Bank Institute.
    7. Li-Gang Liu, 2005. "The Impact of Financial Services Trade Liberalization on China," Discussion papers 05024, Research Institute of Economy, Trade and Industry (RIETI).
    8. Jansen, Marion, 2006. "Services Trade Liberalization at the Regional Level: Does Southern and Eastern Africa Stand to Gain from EPA Negotiations?," CEPR Discussion Papers 5800, C.E.P.R. Discussion Papers.
    9. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H H Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia," Working Papers 03-2007, Singapore Management University, School of Economics.
    10. Alicia García Herrero & Javier Santillán & Sonsoles Gallego & Lucía Cuadro & Carlos Egea, 2002. "Latin American Financial Development in Perspective," Working Papers 0216, Banco de España.
    11. Buch, Claudia M. & Golder, Stefan M., 2001. "Foreign versus domestic banks in Germany and the US: a tale of two markets?," Journal of Multinational Financial Management, Elsevier, vol. 11(4-5), pages 341-361, December.

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    More about this item

    Keywords

    Financial services; international trade; capital flows; financial stability; WTO;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F30 - International Economics - - International Finance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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