The real effects of financial integration

Research output: Contribution to journalArticlepeer-review


This paper shows how correlations in GDP fluctuations rise with financial integration. Finance serves to increase international correlations in both consumption and GDP fluctuations, which explains the persistent gap between the two in the data, a "quantity puzzle". The positive association between financial integration and GDP correlation constitutes a puzzle, as theory suggests a negative relation if anything. Nevertheless, it prevails in the data even after the effects of finance on trade and specialization are accounted for.

Original languageEnglish (US)
Pages (from-to)296-324
Number of pages29
JournalJournal of International Economics
Issue number2
StatePublished - Mar 2006


  • Financial integration
  • International business cycles
  • Quantity puzzle
  • Risk sharing

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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