Financial integration, globalization, and real activity

• Financial integration and globalization's impact on real activity are examined.
• Financial integration and globalization promote growth and reduce growth volatility.
• Financial integration and globalization reduce the probability of growth crises.
• There is no trade-off between financial integration, globalization, and stability.

Using data for 48 advanced and emerging market economies during 1985–2008, this paper examines the impact of measures of financial integration and globalization on several dimensions of real activity. We find that both advances in financial integration and globalization are associated with higher growth, lower growth volatility, and lower probabilities of severe declines in real activity, with the positive impact of financial integration on macroeconomic stability enhanced by improvements in corporate governance. Thus, we find no evidence of a trade-off between advances in financial integration, globalization, and growth and macroeconomic stability.