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Does Financial Integration Matter for Financial Development? Evidence from the East Asian and Pacific Region

Author

Listed:
  • Taghizadeh-Hesary, Farhad

    (Tokai University, Japan)

  • Thi Minh Phi, Nguyet

    (Academy of Finance, Vietnam / Centre for Applied Economics and Business Research, Vietnam)

  • Thi Hong, Hanh Hoang

    (Academy of Finance, Hanoi, Vietnam)

  • Tuan Chu, Vu

    (National Economics University, Vietnam / Centre for Applied Economics and Business Research, Vietnam)

Abstract

This paper assesses the impact of financial integration on financial development and establishes thresholds for materializing gains of financial advances from financial globalization using a sample of 34 countries from the East Asian and Pacific region. Following the approaches of Kose et al. (2011) and Asongu and De Moor (2016), we test non-linearity within the financial openness and financial development nexus through semi-parametric ordinary least-squares regression, and then, we develop threshold dynamics models. According to our findings, the effect of financial integration on financial development significantly changes across different financial inflows. When using external debt as a proxy for financial openness, there exists a robust significant inverted U-shaped relationship between financial integration and financial development. The empirical findings also suggest that the financial integration-development nexus is contingent on the level of trade openness, national income, and institutional quality. The results are robust to different measures of financial development and integration, the inclusion of other determinants of financial development, and considerations of endogeneity.

Suggested Citation

  • Taghizadeh-Hesary, Farhad & Thi Minh Phi, Nguyet & Thi Hong, Hanh Hoang & Tuan Chu, Vu, 2019. "Does Financial Integration Matter for Financial Development? Evidence from the East Asian and Pacific Region," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 34(4), pages 591-618.
    • Handle: RePEc:ris:integr:0782
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    Citations

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    Cited by:

    1. Isaac Ofoeda & Elikplimi K. Agbloyor & Joshua Y. Abor & Kofi A. Osei, 2022. "Anti‐money laundering regulations and financial sector development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4085-4104, October.
    2. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    3. Wang, Lu & Luo, Gong-li & Sharif, Arshian & Dinca, Gheorghita, 2021. "Asymmetric dynamics and quantile dependency of the resource curse in the USA," Resources Policy, Elsevier, vol. 72(C).
    4. Isaac Ofoeda & Elikplimi Komla Agbloyor & Joshua Yindenaba Abor & Kofi Osei Achampong, 2022. "Foreign direct investment, anti‐money laundering regulations and economic growth," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 670-692, April.

    More about this item

    Keywords

    Financial integration; Financial development; Trade openness; GDP per capita; East Asian and Pacific region;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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