Published Online:December 2024
Product Name:The IUP Journal of Financial Risk Management
Product Type:Article
Product Code:IJFRM041224
Author Name:Sridhar Ryakala
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:56-63
Financial integration has significantly reshaped global markets, fostering economic interdependence, while simultaneously increasing vulnerability to financial contagion. This study empirically investigates the relationship between financial integration and contagion in five major economies: the US, Germany, Japan, India, and the UK. Using a panel regression model with data spanning from 2000 to 2023, the analysis incorporates financial integration indicators such as cross-border capital flows, stock market correlations, foreign direct investment (FDI), and cross-border banking activities. The study also accounts for financial crises through a crisis dummy variable and interaction effects. The results indicate that higher financial integration is positively associated with increased contagion risk, particularly during crisis periods. These findings highlight the necessity for policymakers to implement stronger financial regulations, enhance international cooperation, and promote risk management strategies to mitigate systemic risks, while maximizing the benefits of financial integration.
The increasing globalization of financial markets has transformed the dynamics of international finance. Financial integration facilitates economic growth by enabling efficient capital allocation, increasing market liquidity, and fostering risk diversification.