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Patterns and Determinants of Cross-border Financial Asset Holdings in East Asia

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  • Lee, Jong-Wha

    ()
    (Asian Development Bank)

Abstract

This paper analyzes the patterns and determinants of financial integration in East Asia by using the data set of cross-border holdings of financial assets such as equity portfolio, long-term and short-term debt securities, and bank claims. Empirical analysis based on the gravity model of bilateral international asset holdings shows that financial integration among East Asian economies, particularly in equity and debt securities, is relatively lower than in Europe. A large part of regional financial integration in East Asia is due to heavy intra-regional trade in goods-after controlling for bilateral trade volume, East Asia's relatively lower regional integration becomes apparent. The relative lack of financial integration is due largely to underdeveloped financial infrastructure, a low level of capital account liberalization, and higher exchange volatility.

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Bibliographic Info

Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 13.

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Length: 33 pages
Date of creation: 01 Feb 2008
Date of revision:
Handle: RePEc:ris:adbrei:0013

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Keywords: Cross-border portfolio investment; financial integration; East Asia; gravity model;

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References

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  1. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
  2. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
  3. Barry Eichengreen & Pipat Luengnaruemitchai, 2006. "Why doesn’t Asia have bigger bond markets?," BIS Papers chapters, in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 40-77 Bank for International Settlements.
  4. Claudia M. Buch, 2000. "Are Banks Different? Evidence from International Data," Kiel Working Papers 1012, Kiel Institute for the World Economy.
  5. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
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Cited by:
  1. 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.
  2. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.

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