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financial intermediaries to improve the financial sector toward a international boarder. Crockette, A (2000) also affirmed that the financial globalization creates a technical connection of specific financing outcome within the domestic and global markets. In this regard, this mechanism enables the international banks can join with the local banks to improve the financial infrastructure for the developing countries carrying out financial globalization. 2. Financial Sector Development Graff, M.A (1999) confirmed that there are four possibilities relating the financial sector development and economic growth: (1) financial sector development and economic growth are not connected, for instance, in the modern European economic development in the 17th century showed that the economic growth was the outcome of certain growth, but the financial sector development was the financial institutional improvement, (2) the financial sector development followed by the economic growth and (3) the financial sector development is a reason of economic growth and (4) the financial sector development is a obstacle for the economic growth referring to the uncertainty of securities investment and financial crises. 3. Financial Investment Development and Economic Growth King and Levin (1993) confirmed that the degree of financial interaction is the forecasting means for the best economic growth ratio and capital increasing and production as well. For Harry Garresten, Robert Lensink and Elmer Sterken (2004) showed that there is a connection between the economic growth and capital market development, especially, the stock market that measured by the market capitalization, listed securities and income. Thus, Niewerberg (2006) concluded that stock market development determined about the economic growth of country. Based on the findings of previous research of Laura, Victor and Andreas (2008) studied on the involvement of capital market development and economic growth in
Romania showed that there is really involved between the capital market development and economic growth by using variables like: market capitalization, number of listed shares and liquidities, that measured by log (GDP), R1 and log (MCR), R2 for equation = 0.8.
Figure 1: Market Capitalization % of GDP Market Country Market Capitalization (the listed companies) % of GDP Capitalization in USD year Romania 2004 15.61 2005 20.81 2006 26.78 2007 26.54 2008 9.96 2009 20.04 2010 32.384.851.263
Source: World bank indicators (2011), the market capitalization of listed companies by countries
information. Sergio. L (2004) said that the financial globalization may bring the country fall into the financial crisis because of imperfection and other impact of external factors in the global financial markets which created the swindle, frighten behaviors and attacking for speculation, although, those countries have the strong economic foundation. 2. Financial Crises in Asia 1997-1998 There are two sources of Asian financial crisis: (1) Current account crisis: the crisis happening because of the developing courtiers contain the imbalance of budget and imbalance of payment. In order to increasingly develop the national economy, they improved bigger investment expansion from attacking the foreign investment funds into the countries which those numbers have surplus of the local savings for improving productions and services as well as financing to support the areas of construction and real estate, for that reason, it might put the country into the bigger deficit of current account. Moreover, the import quantity of country has sharply increased and the export quantity of country has strongly dropped and what is more, is that the price of oil on the international markets is increasing together with foreign debt is bigger that this circumstance might expand the deficit of current account is biggest in the country. (2) Capital account crisis: due to deeply-surplus capital flow to support financing the deficit of current account and component of those funds is debt and currency crisis that is a original cause of banking and currency crisis. For currency crisis: due to the foreign currency flow quickly poured out of those deficient countries, as a result, the international institutions were afraid in providing their loan or funds to those countries. Simultaneously, banking crisis is happened because of internal credit crisis of the country was strongly reduced.
Figure 2: Investment Growth and Financial Crisis in Asia Investment Countries ratio of GDP (%) Current account of GDP (%) Total excessive budget of GDP (%) abroard Thailand Malysia S.Korea Indonesia 41,7% 41,5% 38,4% 30,8% -8,5% 3,7% 4,8% 3,3% 0,9% 0,7% 0,4% 1,2% 50% 40% 28% 56% Debt of GDP and researves (%) bank 85% 73% 78% 40% short term 99% 41% 203% 176%
Source: Hang Choun Naron (2009), Macroeconomy, 1st edition, Phnom Penh Page 162
3. World Financial Crisis 2008 The world financial crisis started in August 2007 in USA as subprime mortgage crisis happening due to the imbalance of world finance and liberalization of the global financial markets. The crisis can be attributed to a number of factors pervasive in both housing and credit markets, factors which emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments, overbuilding during the boom period, risky mortgage products, increased power of mortgage originators, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, bad monetary and housing policies, international trade imbalances, and inappropriate government regulation. Excessive consumer housing debt was in turn caused by the mortgage-backed security, credit default swap, and collateralized debt obligation, sub-sectors of the finance industry, which were offering irrationally low interest
rates and irrationally high levels of approval to subprime mortgage consumers because they were calculating aggregate risk using Gaussian copula formulas that strictly assumed. 4. European Public Debt Crisis The European sovereign debt is the financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties. The European sovereign debt crisis resulted from a combination of complex factors, including the globalization of finance; easy credit conditions during the 20022008 period that encouraged high-risk lending and borrowing practices; the 20072012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 20082012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. The Credit default swap market also reveals the beginning of the sovereign crisis.