Semester

Summer

Date of Graduation

2009

Document Type

Dissertation

Degree Type

PhD

College

Chambers College of Business and Economics

Department

Economics

Committee Chair

Russell Sobel

Abstract

The main objective of this dissertation is to explore some possible externalities that exist in the international context in the areas of finance and development economics. Chapter one is an introduction to this study. Chapter two examines contagion in exchange market pressure, currency crisis and currency stability. In this chapter I test whether exchange market pressure, in general, is contagious and proceed to test separately for contagion in currency crisis and currency stability. I construct an index of exchange market pressure for a panel of 118 countries and choose a threshold from which positive or negative deviations denote currency crisis and currency stability respectively.;The need to test for contagion in currency stability is to find out whether contagion is only a crises phenomenon. Currency crisis and currency stability spread by geography, trade and financial markets. Using spatial econometric models and constructing the appropriate trade and geography weight matrixes, I estimate the magnitude of the contagion by trade and geography respectively. I find that both transmission mechanisms do significantly transmit currency crisis and currency stability, but trade is more contagious than geography alone. I also find that currency stability is more contagious than currency stability. The results also suggest that trade channel is solely responsible for contagious currency crises that are not regional while the combination of the trade and geography channels of transmission are responsible for the prevalent nature of regional contagious currency crises.;In chapter three I test for contagion in financial development both in levels and in change of financial development. The main measure of financial development considered for this analysis is domestic banking, but I use banking development and stock market development in some cases for robustness checks. I define domestic banking development as domestic credit to the private sector as a percentage of GDP. I explain contagion channels of geography, trade and financial linkages and, using spatial econometric models, test for these for a panel of 98 countries for the geography and trade regressions and a panel of 30 countries (OECD countries) for the financial linkages regression. The results show that financial development and change of financial development are contagious of almost the same magnitude. I also find that the greatest channel of contagion is financial linkages followed closely by trade and geography. The results also suggest that other control variables such as bureaucratic quality and legal environment are important for financial development.;In chapter four, I empirically investigate why ethno-linguistic fractionalization has not dissipated in African countries. This is based on the idea that if trade spreads economic events across countries that engage in trade, why do we not have a single or few dominant language(s) spreading through the African continent? Similarly, why does geography not help propagate such things as a lingua in Africa?;The chapter explains that one of the main factors that have perpetuated ethno-linguistic fractionalization in Africa is colonial rule. Countries and or regions that have long years of colonial rule may be fractionalized than countries and regions with shorter years of colonial rule. Second, colonial barriers have helped perpetuate the fractionalization by limiting trade among African countries, even in the face of increasing globalization. I investigate this in a regression that measures colonial rule as the number of years a country has been colonized while controlling for other determinants of ethno-linguistic fractionalization. In chapter five, I summarize the conclusions of the study.

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