Financial Internationalization And Financial Security: Theory And Empirical Study

Since the 1980s, the financial internationalization tide has swept over the entire world. With the financial internationalization gradually becoming the main melody in international finance field, the world has erupted serious financial crises many times. Latin American debt crisis in the 1980s, Asian financial crisis in the 1990s, American subprime mortgage crisis in the 2010s and other continuous financial crises, have enormously attacked the world financial and economic systems. The haze of crises makes people tend to link "financial risks", "financial crises" with "financial internationalization" directly. Financial risks prevention and financial security maintenance in the process of financial internationalization, as a worldwide economical puzzle, has been attached great importance by various countries.In a contrast, although China's financial internationalization process has accelerated since its entry into WTO, there has never been any crisis breaking out in China, and contrarily, the operating efficiency of China's financial industry has been enhanced due to the financial opening-up. China's realities hints us that only actively participating in financial internationalization tide can realize a country's goal of financial security under the open economy conditions.These contradictory facts have sparked us to ponder over the relationship between financial internationalization and financial security:Firstly, will financial internationalization cause positive or negative impact on a country's financial security? If positive (or negative) effect, what are the factors and their functioning paths through which causing the specifically effect? Secondly, if a country does not implement the financial opening-up, whether there are no financial security problems? If still existing, what are the differences in the performance characteristics of financial security problems under the conditions of financial internationalization and financial non-internationalization? Thirdly, whether the relationship between financial internationalization and financial security is related to the type and state of a country that promotes the process of financial internationalization (i.e. whether there is a nationality effect)? Fourthly, whether this relationship is related to a country's propulsion phase of financial internationalization (i.e. whether there is a time-variant effect)? Fifthly, as for China, the net impact of financial internationalization on national financial security is positive or negative? Sixthly, in the process of China promoting financial internationalization in the near future, what should we do to obtain net positive effect and what factors should we pay special attention to?Guided by these six core questions, the research is promoted step by step as follows:At first, it defines the concepts of financial internationalization and financial security, probes into the financial security problems existing in the process of financial internationalization, and analyzes the routes of financial internationalization positively and negatively impacting on financial security so as to sort through its intrinsic mechanism. Then, based on US and South Korea's cases, it respectively analyzes the financial risks and financial security problems they encountered in the process of financial internationalization and compares their commonness and diversity in order to summarize some policy enlightenment for China. Further, it makes a research on the quantitative relation between the degree of China's financial internationalization and its financial security state. At last, it reviews China's process of financial internationalization since 1979, puts forward China's development direction of financial internationalization from the perspective of maintaining financial security, and preliminarily designs the promoting model, order and directions.Based on the above research mentality, this paper is divided into four main parts including the chapters of theoretical analysis, case analysis, empirical analysis and policy analysis. The main content and viewpoints of these four chapters are as follows:The chapter of theoretical analysis includes the first and second chapters. Its goal is to put forward questions and clear off the logical framework, thus to lay the theoretical foundation for the following research. This chapter accomplishes the work of five aspects:1.From the perspective of nationality, it defines the conception of financial internationalization. Its core connotation is "a bidirectional process and the state of financial inosculation between two economies" and its main performance dimensions include the internationalization of capital movement, financial institutions, financial business, financial markets, financial supervision, monetary policy and domestic currency. And the currency internationalization is the topmost level in the process of financial internationalization for a big country. 2. From the perspective of financial internationalization, it defines the conception of financial security, and pointes out that the financial security in the process of financial internationalization is a kind of "dynamic" security, not a "static" security. At the same time, analyzes the relations of individual finance risks, systematic financial risks, financial security and financial crises.3.It reviews the domestic and foreign literature about the relationship between financial internationalization and financial security, and analyzes the research tendency and the insufficiency of the existing literature in the research content, perspective and methodology so as to find out the breakthrough point of our research.4. From the perspective of the performance dimensionality of financial internationalization, it analyzes the financial risks and the financial security problems existing in the process of capital movement internationalization, financial institutions internationalization and etc, and systematically sorts out the functioning routes of financial internationalization impacting on national financial security.5. It points out that, although financial internationalization can positively and negatively affect financial security simultaneously, there is necessary connection between the former and the latter. Under the conditions of financial internationalization and financial non-internationalization, there are both possibilities that a country has hidden danger to its financial security or even breaks out financial crisis. The only difference is that the performance characteristics under the two circumstances are dissimilar.The chapter of case analysis includes the third chapter. The research goal of this chapter is to summarize enlightenment beneficial for China to promote the process of financial internationalization in the future through comparing the similarities and differences of America's and South Korea's financial internationalization process. Therefore, this chapter carries out research work in four aspects:1.It sorts out the process of financial internationalization in America and South Korea.2. Using the research method of comparative analysis, it compares the two countries'development model of financial internationalization. It is find out that America's model of developing financial internationalization is quite different from South Korea's. The former has a characteristic of natural evolution through spiral deregulation, and the latter has a characteristic of government-leading catching-up development.3. It analyses the financial crises erupted in the USA and South Korea respectively and summarizes common enlightenment and different enlightenment from their experiences.4. Based on the fact that US has the type of a developed country and the state, of a great nation and South Korea has the national type of a developing country and the state of a small country, it is conclude that the relationship between financial internationalization and financial security has a "nationality effect".The chapter of empirical analysis includes the fourth chapter. The goal of this chapter is to make an empirical study on the short-term and long-term relations between China's financial internationalization degree and its financial security state and find out the quantificational features of the relations. Therefore, this chapter carries on three partial works:1.It measures China's financial openness by utilizing the method of economic indicators and systematically measures China's financial internationalization degree by constructing an index called "China's Financial Internationalization Index" (CFII) though the method of regulation description indicators.2. It makes a quantitative research on the state of China's financial security. Due to the data availability, measures China's macroscopic financial security state from 1982 to 2009 through constructing an index called "China's Financial Security Index" (CFSI) by principal component analysis.3. It makes an econometric analysis of CFII and CFSI by treating them as explaining variable and explained variable respectively and leading them in both the cointegration model and error correction model.The chapter of policy analysis includes the fifth chapter. Its research goal is to provide certain practice guidance for China promoting the process of financial internationalization in the future. Therefore, this chapter carries on four partial works:1. From the perspective of the performance dimensions of financial internationalization, it reviews the China's financial internationalization process since 1979, and analyzes the main problems existing in the process of capital movement internationalization and so on. Conclusions are drawn that (1) although China's financial internationalization degrees of seven performance dimensions has risen up as a whole since China's entry into WTO, there is non-uniformity change in their degrees; (2) various sub-internationalization processes contained in each performance dimension have asymmetrical development.2.It divides the process of China's financial internationalization into 4 stages, which are finance suppression stage (1979-1991), the stage of financial operating mechanism starting to move toward marketization (1992-2000), the transitional stage of move toward financial opening-up (2001-2005) and financial opening-up stage (from 2006 to present).3. From the perspective of maintaining national financial security, it proposes the macroscopic development directions of financial internationalization in the future.4. It constructs "China's Financial Internationalization Strategy Promoting Pattern", and probes into the promoting order and directions.The contributions of this thesis are as follows:1. Contributions in theoretical researchFirstly, it systematically analyses the financial risk problems in the process of capital movement internationalization and so on, sorts out the general routes through which financial internationalization negatively affects a country's financial security, and simultaneously puts forwards three main routes through which financial internationalization positively affects national financial security from the perspective of financial opening-up benefits.Secondly, from the perspective of financial internationalization performance dimension, it classifies the representative event occurring in China's financial internationalization process, and portrays the asymmetric structural feature owned by the seven performance dimensions of financial internationalization.Thirdly, it constructs "China's financial Internationalization Strategy Promoting Pattern", inquires into how to promote the process of RMB internationalization through the internationalization of other dimensions, how to arrange the promoting order and which dimension and direction should be attached to great importance.2. Contributions in empirical researchFirstly, it systematically estimates the size and change tendency of China's financial internationalization degree during 1979～2010 years for the first time. In the quantitative study on financial internationalization, it is pointed out that financial internationalization is a multi-dimensional concept and not simply equates to the degree of financial openness, therefore, it is needed to comprehensively define it from its various performance dimensions when quantizing its degree. There are three main contributions of this part:At first, from the perspective of financial internationalization performance dimensions, it constructs the "China's Financial Internationalization Degree Comprehensive Evaluating Indicators System". Second, it revises the method of regulation description indicators, attenuates the subjectivity of event evaluation. Third, utilizing principal components analysis, it synthesizes CFII which can be used in longitudinal comparison and thus founds the "China's Financial Internationalization Database" which lays the data foundation for the following related research.Secondly, from the perspective of financial institutions, financial markets and macroscopic environment, it separately constructs the "China's Microscopic, Mesoscopic, and Macroscopic Financial Security State Evaluating Indicators Systems". The main difference from the existing research is that its observation angle of view is dissimilar, so the choice and design of indicators is different which emphasizes to reflect the dynamic-changing characteristic of national financial security in the process of China's financial internationalization.Thirdly, it makes a systematic empirical research that the short-term and long-term relations between the degree of China's finance internationalization and China's financial security state by utilizing the methods of econometrics test and modeling including correlation coefficients and cross-correlation coefficients test, normality test, test for serial correlation, test for heteroscedasticity, cointegaration test as well as error correction model.