Measures of financial openness and interdependence

Abstract

Purpose

The purpose of this paper is to review concepts and measurements related to financial globalization such as financial openness, financial integration, monetary interdependence, and the mobility and movement of capital.

Design/methodology/approach

This paper surveys the theoretical and empirical literature on monetary interdependence and financial globalization. The major ways in which these concepts are measured empirically are presented and critiqued.

Findings

Disagreements about the degree of financial integration and capital mobility are, in part, explained by the different approaches to measuring these concepts. One major challenge in obtaining a good measures is controlling for other major factors that may influence observed correlations among financial variables. While these relationships still cannot be estimated precisely, it can be safely said that while high for many countries, few if any financial markets are perfectly integrated across countries.

Originality/value

By offering a comprehensive analysis of these different measurements, the paper underscores the different implications for national policies and the operation of the international monetary system of different dimensions of globalization. In particular, the proposition that financial globalization has left most countries with little autonomy for domestic monetary policy is subject to serious debate, at least in the short run.

Citation

Clark, W.R., Hallerberg, M., Keil, M. and Willett, T.D. (2012), "Measures of financial openness and interdependence", Journal of Financial Economic Policy, Vol. 4 No. 1, pp. 58-75. https://doi.org/10.1108/17576381211206497