Impact of financial market infrastructure: interconnectedness, spillovers, and systemic resilience in emerging economies

This study interrogates the widely held assumption that Financial Market Infrastructure (FMI) development inherently stabilizes financial systems. Using data from India, China, Singapore, and Bangladesh (2011–2021), it empirically tests how FMI development influences financial stability and spillover risk, and whether this relationship is conditioned by technological advancement and regulatory quality. Using a robust estimation strategy that includes WLS regression, bootstrapped mediation, and moderation analysis, the study uncovers a striking asymmetry. While FMI development significantly reduces capital flow volatility, its direct effect on financial stability is statistically weak and even slightly negative. This counterintuitive result challenges conventional policy orthodoxy and reveals that FMIs alone are insufficient to anchor domestic stability. Instead, their effectiveness is realized when embedded within strong regulatory regimes and digitally mature ecosystems. This novel insight contributes to financial systems research and calls for second-generation FMI policy thinking that prioritizes governance, interoperability, and institutional readiness over infrastructure scale alone. For emerging economies, the findings underscore the urgency of aligning FMI strategies with regulatory reform and fintech capability to mitigate systemic vulnerabilities and maximize resilience. FMIs must be viewed not merely as operational tools, but as strategic nodes within the architecture of modern financial governance. This study identifies a critical functional asymmetry in emerging Asian financial markets, demonstrating that while FMI development effectively mitigates cross-border spillover risks, it fails to directly anchor domestic financial stability without complementary institutional support. The findings demonstrate that FMI functions as an effective external firewall but requires the mediating force of technological advancement and the moderating power of regulatory quality to secure internal resilience. This evidence refines the premise of infrastructure-led stability, indicting that policymakers should shift toward second-generation strategies that prioritize institutional governance and digital maturity to transform FMIs into resilient strategic nodes.