Are we there yet? On the convergence of financial reforms

Since the 1970s, there have been substantial financial reforms across the world, however little research has been devoted to studying the convergence path of these reforms. While Abiad and Mody (Am Econ Rev 95:66–88, 2005) find that there is movement towards a global ‘norm’ of financial reform, their findings are based upon a cross-sectional approach that has been widely criticized in the literature. In this paper we offer new time-series evidence on the convergence of financial reforms both across and within regions, which can also act as a metric to measure the degree of globalization among countries’ financial systems. We find that some regions of the world have fully converged, but the advanced economies and Sub-Saharan Africa are not converging. In addition, while most countries have fully converged within their own region, notable exceptions are also identified. These results suggest that while financial reforms have largely become homogenized, important distinctions still remain.