The center and the periphery: The globalization of financial turmoil

This paper studies how financial turbulence in emerging market countries can spread across borders. We construct indices of “financial globalization” and evaluate the repercussions of turmoil in three emerging markets that experienced financial crises in the late 1990s: Brazil, Russia, and Thailand. Our findings indicate that financial turbulence in these countries only spreads globally when they affect asset markets in one or more of the world’s financial centers. Otherwise, spillovers are confined to countries in the same region. Also, episodes of worldwide globalization of turmoil are mostly episodes of synchronized crashes while regional turbulence include both joint crashes and rallies.