International Financial Integration and Stock Market in Developing Countries

Objective - This study examines the relation between stock market capitalization and international financial integration for 23 developing countries during 1996 - 2018.Methodology/Technique - By using recently developed econometric panel techniques. The present paper takes into consideration cross section and structural breaks.Findings - Our findings show several interesting results. First, the existence of a long run relationship between the stock market and financial integration, particularly when private capital flows are included. Second, with the presence of structural breaks the result shows that international financial integration has a negative impact on stock market, which means that financial integration loses its explanatory power over the crisis period.Novelty - There is no applied study on the verification of the volatility of international capital flows (foreign direct investments and remittances) in the analysis of the relationship between international financial integration and stock markets.Type of Paper - Empirical