International financial networks, financial development and economic growth

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Mullings, R. ORCID: 0000-0002-5569-9117, 2019. International financial networks, financial development and economic growth. In: Econometric Research in Finance Workshop (ERFIN) 2019, Warsaw School of Economics, Warsaw, Poland, 13 September 2019.

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Abstract

The co-evolution of international stock markets creates a complex system of dynamic interactions which can, in turn, influence economic growth outcomes. This paper uses stock market index returns from 60 major developed- and -developing country stock market indices over the period 2000-2014 to construct time-varying international financial networks. The international financial networks are constructed such that the pairwise distances between the nodes (each node representing individual country markets) are directly related to the degree of co-movement between stock market pairs. The paper finds that the centralities of individual stock markets within the international financial network are highly related to other well-known measures of financial development and financial globalization. In particular, stock markets located within both financially developed countries and countries which are the most financially globalized are located towards the centre of the network. More interestingly, a convex relationship between financial market centralities and financial development is revealed; indicating that financial development increases at an increasing rate as one traverses inwards from the periphery toward the core of the international financial network. Variations in the financial market centralities over time are also significantly related to real economic growth outcomes; having a relatively greater impact within more highly developed countries at the centre of the network. This result holds after controlling for levels of financial development and "feedback effects" between variations in financial market centrality and growth. Our results are robust to multiple measures of market-centrality, implying a greater need to incorporate the role of international financial market network dynamics in modelling real economic outcomes.

Item Type:

Conference contribution

Creators:

Mullings, R.

Date:

13 September 2019

Identifiers: