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We analyze the transmission of the 2007 to 2009 financial crisis to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the United States and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries' economic fundamentals. This confirms the \"wake-up call\" hypothesis, with markets focusing more on country-specific characteristics during the crisis.

Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard-to-securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.

This study quantifies Lithuania’s Equity Risk Premium (ERP) by integrating Damodaran’s country-risk premium (CRP) framework with a multiple regression on key market drivers. By using quarterly data from Q1 2015 to Q4 2024, the CRP model yields an implied cost of equity of 9.84%, corresponding to an ERP of 5.84% above a 4.00% U.S. risk-free rate. Our OLS regression explains 94% of ERP variation (adjusted R² = 0.94). Expected market return emerges as the strongest predictor (β = 0.914, p < 0.001), followed by sovereign bond yield (β = –0.602, p < 0.001) and inflation (β = –0.017, p = 0.025). Variance-inflation factors confirm that multicollinearity is not problematic. These results imply that targeted liquidity-enhancing reforms – such as market-making incentives – could compress Lithuania’s ERP by approximately 0.6 percentage points. By combining theoretical asset-pricing models with frontier-market empirics, our dual-lens approach offers actionable insights for policymakers and investors operating in structurally constrained equity markets.

Large-scale transport infrastructure investments connect both large metropolitan centres of production as well as small peripheral regions. Are the resulting trade cost reductions a force for the diffusion of industrial and total economic activity to peripheral regions, or do they reinforce the concentration of production in space? This article exploits China's National Trunk Highway System as a large-scale natural experiment to contribute to our understanding of this question. The network was designed to connect provincial capitals and cities with an urban population above 500,000. As a side effect, a large number of small peripheral counties were connected to large metropolitan agglomerations. To address non-random route placements on the way between targeted city nodes, I propose an instrumental variable strategy based on the construction of least cost path spanning tree networks. The estimation results suggest that network connections have led to a reduction in GDP growth among non-targeted peripheral counties. This effect appears to be driven by a significant reduction in industrial output growth. Additional results present evidence in support of a trade-based channel in the light of falling trade costs between peripheral and metropolitan regions.

This study investigates the relationship between carbon prices and major food, energy, and mineral commodities in Indonesia and Europe using a multi method framework that includes correlation analysis, hierarchical clustering, random matrix theory (RMT), rolling window eigenvalue diagnostics, and vector autoregression (VAR). The Indonesian dataset (2024–2025) reflects the early stage of the IDX Carbon market, while the European dataset (2015–2025) represents the mature structure of the EU Emissions Trading System. The combination of RMT filtering and VAR modelling allows for the identification of systemic comovement and dynamic transmission channels. The results show a clear contrast between the two markets. In Indonesia, correlation measures, clustering patterns, and RMT indicators suggest that commodity price movements are mostly noise driven, with no stable link between carbon prices and food, energy, or mineral commodities. In Europe, the eigenvalue spectrum, the systemic risk index, and rolling RMT patterns reveal strong and time varying comovement across energy and metal commodities, with VAR results identifying natural gas as the main driver of carbon price dynamics. Overall, the findings highlight how market maturity and energy system structure shape carbon commodity interactions and offer guidance for carbon market design in emerging economies.

In many developing countries, the average firm is small, does not grow, and has low productivity. Lack of market integration and limited information on non-local products often leave consumers unaware of the prices and quality of non-local firms. They therefore mostly buy locally, limiting firms’ potential market size (and competition). We explore this hypothesis using a natural experiment in the Kerala boat-building industry. As consumers learn more about non-local builders, high-quality builders gain market share and grow, while low-quality firms exit. Aggregate quality increases, as does labor specialization, and average production costs decrease. Finally, quality-adjusted consumer prices decline.

International financial integration helps to diversify risk but also may spread crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with collateral-constrained borrowing using a global solution method. Borrowing constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. We examine different degrees of international financial integration, moving from financial autarky, to bond and equity market integration. Financial integration leads to a significant increase in global leverage, substantially escalates the probability of crises for any one country, and dramatically increases the degree of “contagion” across countries. Outside of crises, the impact of financial integration on macroeconomic aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a trade-off emerges between the probability of crises and the severity of crises. Using a large cross-country database of financial crises in developing and developed economies over a forty-year period, we find evidence in support of the model.

We propose a simple metric to measure two aspects of market integration, namely, economic integration (defined as a common cash-flow dynamic) and financial integration (defined as a common risk-pricing dynamic) and then examine their evolution through time while controlling for volatility. We find that developed (DEV) countries exhibit greater degrees of financial and economic integration than emerging (EMG) markets. Although the financial integration gap between these markets remains large throughout the sample period, the EMG economies are catching up with their DEV counterparts in recent years; their level of economic integration has reached that of DEV countries.