Almanaseer, S. R. (2023) The Relationship Between Financial Integration and Financial Stability: an Application of ‎Panel Smooth Transition Model

Sufian Radwan Almanaseer

doi:10.26668/businessreview/2023.v8i5.1935

Authors

Sufian Radwan Almanaseer https://orcid.org/0000-0002-0457-0479

DOI:

https://doi.org/10.26668/businessreview/2023.v8i5.1935

Keywords:

Capital Flows, Financial INTEGRATION, Financial Stability, Inflation, Monetary Policy

Abstract

Purpose: This research aims to determine the correlation between financial integration and financial stability and whether increasing financial integration leads to increased financial stability.

Theoretical framework: The study investigates the effect of growing financial integrity on financial stability and the causal association between the two variables.

Design/methodology/approach: The study uses an Autoregressive-Distributed Lag (ARDL) regression model with the help of least squares (OLS) regression to evaluate the relationship between financial integration and stability. This research work further employed a Panel Smooth Transition Model (PSTR) to determine the nonlinearity among two factors and investigated the entrance stage of financial boosting beyond which Total Factor Productivity (TFP) extension is possibly dampened.

Findings: The results came forward with a positive impact of financial integrity on financial stability across many countries. Findings indicated that economic and financial integration is the primary channel to mediate the effect of monetary extremity in economies. Fiscal policy should seek measures to reduce the risk of crisis transfer and increase the benefits of financial integration to achieve financial stability.

Research, Practical & Social implications: The study recommends considering financial integration for economic development and avoiding the occurrence of risk by considering a fiscal policy.

Originality/value: The results highlight the sectors where financial integration is required. Moreover, establishment of subsidiary international bank in the resident economy with the local financial centre’s loans has been emphasized.

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