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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


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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