International financial integration and financial depth: New evidence from an asymmetry analysis

Abstract

In the field of international finance, there is a large role for international financial market integration and financial depth by contributing to the global financial system and enhancing financial system power through easier access to sufficient funds of government and private sectors. This research aims to determine the short‐run and long‐run impact of financial depth on international financial market integration in eight selected countries over the period of 1980–2021 in both a linear and nonlinear model, while providing the opportunity to assess the asymmetric impact of financial depth on international financial market integration. After estimating the models, we show that financial depth has significant short‐run and long‐run effects in most of our sample countries in the linear mode. We also show that the long‐run impact of financial depth on financial market integration is asymmetric in all eight countries, concluding that financial depth and risks associated with it play an important role in international financial market integration, and it is important for countries to select and implement adequate financial market policies to take advantage of this relationship.