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I study effects of cross-border financial integration in stocks, bonds, and bank loans on output co-movement. Using bilateral data on cross-border portfolio asset and bank loan holdings for 58 economies from 2001-2015, I build on simultaneous equation estimation to disentangle the main drivers of bilateral output co-movement. I find evidence consistent with effects of international financial integration being heterogeneous and varying with time and geography. Yet, when controlling for country-level financial stress effects become homogenous: In times of low financial stress, greater stock and bond market integration lead to less and more co-movement, respectively. Heightening country-level financial stress reverses the signs of all effects. Opposite signs of stock and bond/loan integration effects across all specifications suggest that stock market integration acts as a buffer to global output co-movement effects induced by bond/loan market integration.
