1. The literature on the finance-growth nexus is vast. Reviews of this literature can be found in a variety of forms that can suit different preferences. A comprehensive review is found in Levine (2005). Rajan and Zingales (2001, 2003b), by contrast, provide shorter reviews in less technical language. Caprio and Honohan (2001) offer an excellent rendition that emphasizes the World Bank contributions to the empirical literature. See the following section, “Why Does Financial Development Matter?” for further discussion.
2. For a detailed study on financial globalization see Obstfeld and Taylor (2005).
3. In fact, another aspect, which we analyze in chapter 3, is the share of foreign currency bonds, which some might view as an alternative indicator of internationalization.
4. An extensive literature analyzes the effects of internationalization on those firms that participate in international equity markets, focusing on the firms' trading and liquidity (see, for example, Noronha, Sarin, and Saudagaran 1996; Smith and Sofianos 1997; and Pulatkonak and Sofianos 1999); the impact of internationalization on stock prices and the cost of capital (see, for example, Alexander, Eun, and Janakiramanan 1988; Foerster and Karolyi 1999; Miller 1999; and Errunza and Miller 2000); and the effect of internationalization on firm size, growth, financing constraints, and financial structure (see, for example, Pagano, Roell, and Zechner 2002; Gozzi, Levine, and Schmukler 2006; Lins, Strickland, and Zenner 2005; and Schmukler and Vesperoni 2006). See Karolyi (2006) for a review.
5. See, for example, Coffee (1999, 2002), Stulz (1999), and Reese and Weisbach (2002).
6. Levine and Schmukler (2006, forthcoming) analyze the impact of migration to international markets on domestic stock market trading and liquidity. See also Moel (2001) and Karolyi (2004) for evidence on how the use of American depositary receipts (ADRs) can affect stock markets in emerging economies.
7. For a recent comprehensive study of banking in Latin America see IDB (2005).
8. A related limitation is that we estimate reduced-form equations and do not disentangle the structural links among the variables of interest.
9. See, for example, Robinson (1952), Lucas (1988), and Stern (1989).
10. See Levine (2005) for a detailed discussion.
11. Boyd and Prescott (1986), Allen (1990), and Greenwood and Jovanovic (1990) present theoretical models in which financial intermediaries arise to generate information on firms and sell it to investors.