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Home arrow Research Projects arrow IP10 - Finance arrow Project Description
Project Description Print

In recent decades, the growth of international financial transactions has far outstripped the growth in international trade. Contrasting the multinational efforts to reduce impediments to trade under the GATT respectively WTO, removing capital controls originates primarily in the abortion of the Bretton-Woods system and the development of innovative financial services such as Eurocurrencies by commercial banks. Deregulation and internationalisation has allowed financial institutions and multinational firms to intermediate between savers and borrowers across national borders, seek higher returns on investment abroad, and diversify risk more effectively across economies less likely to be hit by symmetric economic shocks. Furthermore, open capital markets complement international trade by easing the finance of cross-border exchanges and insuring against the risks thereof. Finally, international financial markets impose disciplinary effects upon governments when pursuing over-expansionary regulation and policies entails large capital outflows.  

Amid the benefits of international integration, many countries remain financially underdeveloped to the extent that they provide local entrepreneurs with only limited access to funding even in the face of high expected returns on investment. The nexus between economic and financial development suggests that establishing well functioning and internationally integrated capital markets stands crucial for countries wanting to escape poverty. However, abandoning capital controls makes domestic financial markets more vulnerable to excessive volatility originating in other markets suffering from high inflation, large government deficits, or inadequate banking supervision.

It is within this context that individual project (IP) 10 revisits some of the complex interrelationships among flows, development, and stability of the international capital markets, which are in turn embedded in the trade of goods and services, institutional arrangements, and macroeconomic conditions. Thereto, we draw on standard thought and techniques employed in theoretical and empirical economics on (international) financial markets and regulation. Establishing a better understanding of the international capital market should provide the basis to further and broaden its benefits meanwhile preventing financial instability and crisis, which might transmit rapidly across economies closely interlinked by capital flows.  
 Focus of individual researchers

Ernst Baltensperger
Project Leader: Project supervision.

Nils Herger
Alternate Leader: Applied empirical economics on financial development and stability.

Roland Hodler
Research Associate:

Michael Lobsiger
Doctoral Student:

SNF - Swiss National Science Foundation The National Centres of Competence in Research are a research instrument of the Swiss National Science Foundation