From Various Degrees of Trade to Various Degrees of Financial Integration: What do Interest Rates Have to Say?
AbstractThis paper proposes a systematic study of the degree of financial integration following the degree of trade integration according to Balassa’s (1961) classification, from preferential trading area to complete economic integration. To this end, we exploit all the information contained in interest rates and rely on the expectations hypothesis of the term structure of interest rates and real interest rate parity. These two conditions are empirically investigated on various regional trade agreements, using cointegration techniques by paying a special attention to potential breaks. Our results show that customs unions, corresponding to step 3 of the Balassa’s classification, seem to be a decisive threshold after which financial integration robustly takes place.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2009-01.
Date of creation: Jan 2009
Date of revision:
FINANCIAL INTEGRATION; TRADE INTEGRATION; REGIONAL TRADE AGREEMENT; TERM STRUCTURE OF INTEREST RATES; REAL INTEREST RATE PARITY;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-14 (All new papers)
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.:
- Soloaga, Isidro & Winters, L. Alan, 1999. "How has regionalism in the 1990s affected trade?," Policy Research Working Paper Series 2156, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.