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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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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