A study on financial integration

Well managed international financial integration promises important benefits. These benefits increase on Investment and the consumption. On the production, integration permits greater international specialisation and facilitates the allocation of scare resources to their most productive uses independent of location, thereby accelerating growth. On the other hand, the consumption, integration allows individuals to insure themselves against adverse developments in their home economy through international portfolio diversification and by tapping global capital markets to smooth temporary declines in income. Can integration permanently raise growth rates the opening economy, or even in the world economy? Any permanent growth effect must come through an increase in world saving rtes or faster productivity growth. There is little reason to believe that integration boost world saving rates. Indeed, a decline is more likely, since diversification of income risk and access to world capital markets to smooth out temporary income fluctuations reduce the need for precautionary savings. Any permanent gains from integration are thus more likely to come through the quality rather than the quality of investment.