Thi Phuong Thanh Tran

Type of the article: Research Article

Abstract
Vietnam is an increasingly open economy with a heavily bank-based financial sector. This makes banking stability highly sensitive to external forces and governance quality. This study examines whether the effects of financial and trade globalization on banking stability vary with the strength of corruption control. Using 390 bank-year observations from 26 Vietnamese commercial banks over 2009–2023, we estimate a Panel Smooth Transition Regression (PSTR) model measuring financial and trade globalization at the country-year level. The Corruption Perceptions Index (CPI), where higher values indicate lower perceived corruption and stronger corruption control, serves as the transition variable. System GMM estimation serves as a robustness check.
Empirical results confirm that the effects of economic globalization on banking stability change from negative to positive as corruption control exceeds a threshold level. Financial globalization yields a negative baseline effect of –3.131 and transition coefficient of 5.458, with an estimated CPI transition location of 33.13. The corresponding estimates for trade globalization are −1.932, 3.757, and 33.27. These findings suggest that while economic globalization erodes banking stability under weak corruption control, its marginal effects turn significantly positive once the CPI moves beyond the thresholds. Corruption control itself has a positive effect on banking stability. The system GMM results confirm the same regime-dependent pattern.
These findings suggest that the benefits of globalization depend on institutional quality. Strengthening corruption control, governance, and bank risk management is therefore essential for ensuring that deeper global integration contributes to banking stability in Vietnam.