| This study develops a model of financial interdependence and empirically tests that model to help explain recent trends in financial globalization. Five factors hypothesized to impact this globalization process are operationalized as seven variables and tested using an error correction specification on time series data. The factors hypothesized to impact globalization are national level decisions to liberalize capital controls, endogenous market sophistication, the level of international trade, the level of world industrial production, and U.S. short-term interest rates. In a fully specified model with the error correction component, as well as a seasonal component for the quarterly data, all variables except industrial production demonstrated statistical significance at the.10 level or better. |
