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The Role of Financial Integration in East Asia in Promoting Regional Growth and Stability

Author

Listed:
  • Chaipat Poonpatpibul

    (Bank of Thailand)

  • Surach Tanboon

    (Bank of Thailand)

  • Pornnapa Leelapornchai

    (Bank of Thailand)

Abstract

This paper examines the role of financial integration in promoting growth and stability in East Asia. It first examines the degree of financial integration and finds that East Asia is more integrated with the developed markets than with regional markets. It then proceeds to investigate the benefits of regional financial integration on economic growth. Intraregional foreign direct investment is found to have a crucial role in enlarging trade within the region. Financial integration can also lead to better allocation of funds within the region, lower risk premium and cost of capital, and financial market deepening. However, financial integration may pose higher risks on economic stability via greater volatility of capital flows which can be magnified by increasing cross-border linkages. As East Asian countries will likely be exposed to a variety of new types of risks with greater international financial integration, regional financial cooperation will have to play an important role. Strengthening regional surveillance system, establishing regional crisis prevention and resolution framework, and building domestic and regional financial infrastructure particularly for long-term regional financing are necessary for enhancing long-term macroeconomic and financial stability as well as competitiveness of the region.

Suggested Citation

  • Chaipat Poonpatpibul & Surach Tanboon & Pornnapa Leelapornchai, 2006. "The Role of Financial Integration in East Asia in Promoting Regional Growth and Stability," Working Papers 2006-05, Monetary Policy Group, Bank of Thailand.
    • Handle: RePEc:bth:wpaper:2006-05
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    Cited by:

    1. Gloria O. Pasadilla, 2008. "Financial Services Integration in East Asia : Lessons from the European Union," Finance Working Papers 22680, East Asian Bureau of Economic Research.
    2. Jennifer Corbett, 2010. "Asian Financial Integration," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 5, Edward Elgar Publishing.
    3. Soyoung Kim & Jong‐Wha Lee, 2012. "Real and Financial Integration in East Asia," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 332-349, May.
    4. Rughoo, Aarti & You, Kefei, 2016. "Asian financial integration: Global or regional? Evidence from money and bond markets," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 419-434.
    5. Yu, Ip-Wing & Fung, Kang-Por & Tam, Chi-Sang, 2010. "Assessing financial market integration in Asia - Equity markets," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2874-2885, December.
    6. Sanjay Sehgal & Piyush Pandey & Florent Deisting, 2018. "Stock Market Integration Dynamics and its Determinants in the East Asian Economic Community Region," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 389-425, June.
    7. Khaled Guesmi & Olfa Kaabia & Ilyes Abid, 2017. "ASEAN Plus Three Stock Markets Integration," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 565-581, September.
    8. Ip-wing Yu & Laurence Fung & Chi-sang Tam, 2007. "Assessing Financial Market Integration In Asia - Equity Markets," Working Papers 0704, Hong Kong Monetary Authority.

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