Analysis of Financial Convergence with Structural Breaks Unit Root Tests

The process of financial liberalisation in emerging markets over the past two decades has both fostered financial development and reduced the information gap between developed and developing countries. This situation has made it more important for developing countries to achieve economic growth, to provide the necessary funds for investments and to reach the living standards of developed countries. Therefore, financial systems in developing countries are considered to have reached a level quite close to that of developed countries. The aim of this study is to investigate whether countries defined as emerging market economies have converged to the financial systems of developed countries with advanced financial systems. in this study, the convergence of financial development in 12 selected emerging market economies to the reference 5 developed countries is analyzed by structural breaks panel unit root tests. In the analysis covering the period 1996-2016, the financial development index calculated using financial development indicators was obtained. KPSS and Fourier KPSS panel unit root tests with structural breaks are then applied to the series obtained. According to the findings of the analysis, financial developments in selected emerging market economies converge to the financial systems of advanced economies.