What is financial integration?

It's a phenomenon where financial markets in neighbouring, regional or global economies are closely linked together - for example, through cross-border capital flows, foreign participation in the domestic financial markets, and information sharing among financial institutions. Legal restrictions can sometimes hinder financial integration.

What you need to know about financial integration.

Financial integration of neighbouring, regional or global economies can take place through a formal treaty in which the governing bodies of those economies agree to cooperate to address financial disturbances. But because of the recent financial crises, there's been a lively debate among academics about the costs and benefits of financial integration.

The advantages of financial integration include better governance, efficient capital allocation and higher growth and investment. But, a higher degree of financial integration also has the potential to trigger severe financial contagion in linked economies during crises.