The Financial Development through the Regional Markets: A Review

Abstract

The economic globalization has had a particular profound impact upon financial development during the last four decades giving rise to a group of closely intertwined international markets on which banks, corporations, or government agencies trade an increasing amount of assets such as bonds, shares, or currencies. The transaction cost of accessing external funds has shrunk considerably, which facilitates investment and market entry, entails competitive pressures to innovate, mobilizes savings to accumulate capital, and eventually induces further economic growth. Still, in terms of financial development, considerable heterogeneity continues to exist around the world. The importance of understanding the factors behind the time series variation in financial development, alongside those that shape the cross-country variation, cannot be over emphasized. In a world of capital immobility, investments are bound to be solely financed by domestic savings. However, varying degrees of financial development and exchange rate flexibility between countries can both potentially act as frictions to international financial integration.