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Essays on financial integration and growth.


My dissertation consists of three separate papers. The first paper shows that international financial integration can increase consumption volatility in a developing country facing credit market imperfections. I use a two country international real business cycle model where each country produces a traded and a non-traded good. I assume that one of the countries is small and faces two financial frictions. First, the non-traded goods sector faces borrowing constraints due to enforceability problems. Second, the owners of the non-traded sector firms do not have access to international asset markets even when the country is financially integrated with the rest of the world. The interaction of these two frictions may cause consumption volatility to increase as a result of financial integration. This is consistent with the empirical evidence for developing countries.