Publication

This paper discusses how the actual level of financial openness is an outcome of the interaction between market forces and the enforcement of existing regulations. The authors show that de facto financial openness is the outcome of macro-economics, public finance and political economy considerations. They conclude that understanding the links between the economic and political economy structure and de facto financial integration is a precondition for evaluating the challenges, risks and benefits associated with de jure financial integration. The theoretical and empirical analysis shows that a more openly competitive, free and inclusive political system will lead to lower levels of de facto financial openness.