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Financial Integration in Emerging Asia: Challenges and Prospects

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  • Cyn‐Young PARK
  • Jong‐Wha LEE

Abstract

Using both quantity- and price-based measures of financial integration, this paper shows an increasing degree of financial openness and integration in emerging Asian markets. This paper also assesses the impact of a regional shock relative to a global shock on local equity and bond markets. The findings of this paper suggest that the region’s equity markets are integrated more globally than regionally, although the degrees of both regional and global integration have increased significantly since the 1997/98 Asian financial crisis. However, emerging Asia’s local currency bond markets remain generally segmented, being neither regionally nor globally integrated. A case can be made for the benefits of increased regional integration of financial markets. Financial integration at the regional level allows for the region’s economies to benefit from allocation efficiency and risk diversification. The findings of this paper suggest that policymakers in the region must strike the right balance between maximizing the net benefits from regional and global financial openness, and minimizing the potential costs of financial contagion and crisis.

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File URL: http://hdl.handle.net/10.1111/j.1748-3131.2011.01193.x
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Bibliographic Info

Article provided by Japan Center for Economic Research in its journal Asian Economic Policy Review.

Volume (Year): 6 (2011)
Issue (Month): 2 (December)
Pages: 176-198

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Handle: RePEc:bla:asiapr:v:6:y:2011:i:2:p:176-198

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  1. Park, Cyn-Young & Majuca, Ruperto & Yap, Josef, 2010. "The 2008 Financial Crisis and Potential Output in Asia: Impact and Policy Implications," Working Papers on Regional Economic Integration 45, Asian Development Bank.
  2. Hui Tong & Shang-Jin Wei, 2009. "The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis," NBER Working Papers 15207, National Bureau of Economic Research, Inc.
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Cited by:
  1. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  2. Peter J. Morgan & Mario Lamberte, 2012. "Strengthening Financial Infrastructure," Finance Working Papers 23191, East Asian Bureau of Economic Research.

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