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Measuring Regional Market Integration in Developing Asia: a Dynamic Factor Error Correction Model (DF-ECM) Approach

Author

Listed:
  • Qin, Duo

    (Queen Mary, University of London)

  • Cagas, Marie Anne

    (University of the Philippines)

  • Ducanes, Geoffrey

    (School of Economics)

  • Magtibay-Ramos, Nedelyn

    (Asian Development Bank)

  • Quising, Pilipinas F.

    (Asian Development Bank)

Abstract

This paper examines empirically the dynamic process of regional market integration in twelve Asian economies using a new modeling approach combining DF with ECM. This approach enables us to obtain latent regional dynamic factors which correspond well with the 'foreign' parity variables in theory when a market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an errorcorrection form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data from the past decade.

Suggested Citation

  • Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & Magtibay-Ramos, Nedelyn & Quising, Pilipinas F., 2007. "Measuring Regional Market Integration in Developing Asia: a Dynamic Factor Error Correction Model (DF-ECM) Approach," Working Papers on Regional Economic Integration 8, Asian Development Bank.
    • Handle: RePEc:ris:adbrei:0008
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    Citations

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    Cited by:

    1. Vinokurov, Evgeny, 2010. "The System of Indicators of Eurasian Integration," MPRA Paper 22227, University Library of Munich, Germany.
    2. Vinokurov, Evgeny, 2009. "Systema Indikatorov Evraziyskoy Integracii [The System of Indicators of Eurasian Integration]," MPRA Paper 20914, University Library of Munich, Germany.
    3. Rigg, Robert & Schou-Zibell, Lotte, 2009. "The Financial Crisis and Money Markets in Emerging Asia," Working Papers on Regional Economic Integration 38, Asian Development Bank.
    4. Qin, Duo, 2008. "Uncover Latent PPP by Dynamic Factor Error Correction Model (DF-ECM) Approach: Evidence from Five OECD Countries," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-26.
    5. Qin, Duo & Tan, Tao, 2009. "How much intraregional exchange rate variability could a currency union remove? The case of ASEAN+3," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1793-1803, October.
    6. 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.
    7. McKibbin, Warwick J. & Chanthapun, Waranya Pim, 2009. "Exchange Rate Regimes in the Asia-Pacific Region and the Global Financial Crisis," Working Papers on Regional Economic Integration 36, Asian Development Bank.
    8. Schou-Zibell, Lotte & Madhur, Srinivasa, 2010. "Regulatory Reforms for Improving the Business Environment in Selected Asian Economies - How Monitoring and Comparative Benchmarking Can Provide Incentive for Reform," Working Papers on Regional Economic Integration 40, Asian Development Bank.
    9. Ekaterina Y. ARAPOVA, 2017. "Ex-Post Analysis Of The Influence Of Tariff Liberalisation On Asean Exports," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(2), pages 135-154.
    10. Madhur, Srinivasa & Wignaraja, Ganeshan & Darjes, Peter, 2009. "Roads for Asian Integration: Measuring ADB's Contribution to the Asian Highway Network," Working Papers on Regional Economic Integration 37, Asian Development Bank.
    11. Qin, Duo & Tan, Tao, 2009. "How much intraregional exchange rate variability could a currency union remove? The case of ASEAN+3," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1793-1803, October.

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    More about this item

    Keywords

    Law of one price; market integration; dynamic factor; error-correction model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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