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The Chinese Economies in Global Context: The Integration Process and Its Determinants

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Author Info
Yin-Wong Cheung (University of California, Santa Cruz)
Menzie Chinn (University of Wisconsin, Madison)
Eiji Fujii (University of Tsukuba, Japan)

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Abstract

The linkages between the People's Republic of China and the other Chinese economies of Hong Kong and Taiwan are assessed, and compared against those with Japan and the US. We first characterize the time series behavior of three criteria of integration, namely real interest parity, uncovered interest parity, and relative purchasing power parity. There is evidence that these parity conditions tend to hold over longer periods between the People's Republic of China and all other economies, although they do not hold instantaneously. Overall, the magnitude of deviations from the parity conditions is shrinking over time. Amongst all, however, Hong Kong exhibits indications of a more advanced level of integration with the mainland. We also find that evidence is surprisingly positive for integration with the US. We then turn to examining the determinants of the degree of integration. Regression results suggest that the degrees of financial and integration depend upon the extent of capital controls, foreign direct investment linkages as well as exchange rate volatility.

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number 1032.

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Date of creation: 16 Jun 2003
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Handle: RePEc:cdl:ucscec:1032

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Related research
Keywords: uncovered interest parity; real interest parity; purchasing power parity; exchange rates; capital mobility; market integration;

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pasricha, Gurnain, 2007. "Financial Integration in Emerging Market Economies," MPRA Paper 5278, University Library of Munich, Germany. [Downloadable!]
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  2. Hiroshi Fujiki & nd Akiko Terada-Hagiwara, 2007. "Financial Integration in East Asia," IMES Discussion Paper Series 07-E-12, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
    Other versions:
  3. Vincent Bouvatier, 2007. "Hot Money Inflows and Monetary Stability in China: How the People's Bank of China Took up the Challenge," Money Macro and Finance (MMF) Research Group Conference 2006 161, Money Macro and Finance Research Group. [Downloadable!]
  4. Vincent Bouvatier, 2006. "Hot money inflows in China : How the people's bank of China took up the challenge," Cahiers de la Maison des Sciences Economiques bla06011, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  5. Liew , Venus Khim-Sen & Ling, Tai-Hu, 2008. "Real interest rate parity: evidence from East Asian economies relative to China," MPRA Paper 7291, University Library of Munich, Germany. [Downloadable!]
  6. Li-Gang Liu, 2005. "China'S Role In The Current Global Economic Imbalance," Discussion papers 05010, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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