Intranational Financial Integration: Evidence from the Canadian Banking Industry

  • Sandra Hanson McPherson
  • Christopher J. Waller
Part of the ZEI Studies in European Economics and Law book series (ZEIS, volume 1)

Abstract

Feldstein and Horioka (1980) argued that if international capital markets are fully integrated, then national savings rates and national investment will be uncorrelated. The basis for the argument is that financial integration allows borrowers and lenders to engage in financial transactions in any country. Hence, borrowing to finance investment in a nation does not rely on the saving behavior of the nation. They found that national saving and investment rates are highly correlated suggesting that there is not complete integration of international financial markets. Subsequent research pointed out ways that this correlation could occur even if there was complete integration of capital markets. For example, financial integration will be apparent only when there is a need for capital to flow across regions, which requires uncommon, or relative, shocks to each county’s saving and/or investment demand. With common shocks, there is no need for capital to flow across countries and so it will stay at home, which causes national saving and investment to be highly correlated even if there is complete capital market integration. Consequently, any test of financial integration must control for common shocks to the regions.

Keywords

Monetary Policy Relative Growth Rate Impulse Response Function Quarterly Data Financial Integration 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. Bordo, M., A. Redish and H. Rockoff. (1995) “A comparison of the United States and Canadian banking systems in the twentieth century: stability vs. efficiency?” in Anglo-American Financial Systems: Institutions and Markets in the Twentieth Century. Burr Ridge, IL: Irwin Professional Publishing.Google Scholar
  2. Feldstein, M. and C. Horioka. (1980) “Domestic savings and international capital flows.” Economic Journal 90: 314–29.CrossRefGoogle Scholar
  3. Hanson McPherson, S. and C. Waller. (1998) “Do local banks matter for the local economy? In search of a regional credit channel.” forthcoming in Hess, G. and E. van Wincoop (eds) Intranational Macroeconomics. Cambridge: Cambridge University Press.Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Sandra Hanson McPherson
    • 1
    • 2
  • Christopher J. Waller
    • 1
    • 2
  1. 1.Georgia Southern UniversityStatesboroUSA
  2. 2.University of KentuckyLexingtonUSA

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