Essays on international financial integration

This dissertation is composed of two essays. First essay is an empirical study of the risk sharing between countries in the wake of financial liberalization. Conventional wisdom suggests that countries that are financially integrated should be better insured against macroeconomic risk. In this essay, I study whether international risk sharing has improved with greater financial integration during the period 1973-2003. Using panel data regressions, I demonstrate that risk sharing improves with greater financial integration for industrial countries, especially during the globalization period. However, developing countries do not show any discernible pattern in risk sharing. Emerging economies, which accounted for a huge share of capital flows in the recent past, show only a marginal change in risk sharing. Capital flows come in different types such as portfolio equity flows, debt flows, foreign direct investment among others and each affects risk sharing differently. I examine the unique role of different types of capital flows in risk sharing and find that risk sharing benefits are higher for industrial countries for each of these components. On the contrary, greater reliance on debt flows appears to have reversed the potential risk sharing gains for the emerging economies.;My second essay studies the impact of trade and financial liberalization on national democratic governance during the period 1960-2000 for a panel of 105 countries. Using difference-in-differences estimation, I demonstrate that trade liberalization has positive impact on democracy, whereas, financial liberalization made democracy less likely. There are numerous ways through which globalization fosters democracy and to understand the mechanism, I estimated a number of different specifications. I find that globalization through economic development fosters democracy. The estimates reveal that democratization is more likely to emerge in affluent and especially educated societies. Also, greater social spending enhances democracy and being involved in armed conflicts and greater military density undermines it.