Impact of Financial Integration on Production Volatility in Developing Countries

Abstract

The purpose of this paper is to study the interaction between financial integration and ICT developments, and how thishas an effect onproduction volatility. It usespanel data on ten developing countries taken from 1987 to 2010. We use the PVAR approach, the response impulsionfunctionand the variance decomposition. Our results on countries that are exceptionally financially integrated and/or possess a high level of ICT indicate that theyexperience strong fluctuations of production in cases of monetarypolicyshocks, and small fluctuations of production in cases of budgetary policy shock.

Keywords: financial integration, production volatility, ICTs, panel VAR.