Financial liberalization and patterns of international portfolio holdings

International financial markets during the past several decades have been characterized by a significant rise in gross international capital flows, increased prominence of nontraditional financial institutions, and globalization of the banking sector. We utilize a 155-country panel framework to present new evidence that financial liberalization is related to reallocation of financial capital around the world. More specifically, we find that deregulation is associated with greater stocks of cross-border financial assets, overall net international indebtedness, and a net portfolio characterized by equity assets and debt liabilities.