Index of Economic Stability and Financial Integration of Small Open Countries

Abstract

Over the recent decades, we have witnessed advanced processes of liberalization of capital flows, and increasing integration and globalization of financial markets. Along with the globalization trend, ever since the end of the 1980s, the process of financial integration has also been taking place, as a consequence of removing barriers to free movement of capital between countries. Therefore, this research explores financial integration of small open countries and aims to make conclusions on how this integration can affect their economic stability. Qualitative definitions of small countries point out that they typically have a limited territory, relatively small population and limited resources. The research hypothesis is postulated as follows: the economic stability index of small open countries is conditioned by their financial integration. The analysis includes small open countries of Southeast Europe observed from 2005 to 2020, with relevant statistical data used for the total inflow and outflow of investments, the share of assets and liabilities in gross domestic product and the calculated value of the economic stability index. The analysis was made using the methods of correlation analysis and correlation test. The results show that there is a correlation between financial integration and the economic stability index in small open countries.