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Working Paper 144 - An Analysis of the Impact of Financial Integration on Economic Activity and Macroeconomic Volatility in Africa within the Financial Globalization Context

16-Feb-2012

The purpose of this study is to provide an empirical analysis of some of the impacts of international financial integration on economic activity and macro-economic volatility in African countries. While dominant economic theory suggests that capital account liberalization has a more or less significant impact on economic growth, there are also a number of works that call into question the existence of capital mobility-related benefits.

Dominant economic theory suggests that financial globalization and international financial integration may foster more efficient resource allocation, facilitate risk diversification, increase specialization in production, create technological spin-offs, contribute to the development of the financial system, improve investment rates and boost growth (refer, in particular, to IMF (2001) ; Edison, Klein, Ricci and Sløk (2002a and 2000b) ; Henry (2000) ; King and Levine 1993); Mougani (2001 and 2006) ; Obstfeld (1994) ; Prasad et al. (2003); and Stulz (1999). In acknowledging the existence of these potential impacts, the industrialized countries have been committed to capital account liberalization policies for over a quarter of a century. According to these authors, many of the positive impacts observed in these countries are largely due to increased investment opportunities and financial development induced by greater openness of capital markets.

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