Liberalization vs. Integration difference, investment, anywhere, discount, understand

DarienHacker

I've been reading in SS12, reading #35 about liberalization and integration and I'm not sure if I understand the difference between the two.

This is probably a basic question, but what exactly is financial liberalization? I understand that an integrated market allows investment from anywhere and has a lower discount rate because the risk is the covariance with the world instead of the variance of its market returns.

I also understand that liberalization is a gradual process that is somewhat related to integration.

However, the entire reading is confusing because I don't understand the difference between the two terms. Can someone provide a clear definition?

dyga

Thanks everyone. That was kind of what I thought but now I really understand it.

Windjammer

IMO,

Liberalization is some actions taken (due to outside/inside pressure or natural enviromental change) by local goverment to open the market (capital flow/investment/ import & export/human resources flow....) in that country.

Integration is the dynamic state(s) of the result of those actions taken in liberalization.

ll11

Think of emerging markets as difficult for foreign investors to invest in. Maybe there are laws against outside investment, or that the financial market is not developed enough to warrant investment, etc.. when financial liberalization occurs, this makes it easier to invest. The government is saying, we want to open our markets to the outside world.

Therefore, due to the ease of foreign capital flowing into the country, the risks decrease and risk-adjusted return should be comparable to the rest of the world (market integration).

This is opposed to market segmentation where the risk-return tradeoffs in different markets are not similar.

Analyze_This

liberalization is something the country engages in , capital markets , currency floating , political liberalization , passing laws to ensure more equitable stock markets etc.

Integration is seen as an after effect in financial flows : capital flows , trade flows , current account flows

Analti_Calte

FinNinja Wrote:
-------------------------------------------------------
> Liberalization is a process and integration is a
> result.


So liberalization is the process of integrating a countries market with the rest of the world?

mar350

Liberalization is a process and integration is a result.