Drivers of financial globalisation: The role of informational frictions

Social globalisation reduces informational frictions and is expected to promote international financial integration. This is because, the cost to obtain information constitutes a significant barrier to cross-border financial flows. I examine how aspects of social globalisation influence financial integration by the revised KOF Globalisation Index. The index allows to disentangle trade and financial globalisation, different aspects of social globalisation, and de facto and de jure aspects of globalisation. The results suggest that de facto financial globalisation is associated with aspects of social globalisation that represent channels of information transmission. In particular, financial globalisation is positively associated with personal contacts but not associated with information flows and cultural proximity. I propose that personal contacts are important to overcome cross-border informational frictions and promote international financial integration.