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Financial Integration in Emerging Asia: Challenges and Prospects

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  • Park, Cyn-Young

    ()
    (Asian Development Bank)

  • Lee, Jong-Wha

    ()
    (Korea University)

Abstract

Using both quantity- and price-based measures of financial integration, this paper shows an increasing degree of financial openness and integration in emerging Asian markets. This paper also assesses the impact of a regional shock relative to a global shock on local equity and bond markets. The findings of this paper suggest that the region’s equity markets are integrated more globally than regionally, although the degrees of both regional and global integration have increased significantly since the 1997/98 Asian financial crisis. However, emerging Asia’s local currency bond markets remain generally segmented, being neither regionally nor globally integrated. A case can be made for the benefits of increased regional integration of financial markets. Financial integration at the regional level allows for the region’s economies to benefit from allocation efficiency and risk diversification. The findings of this paper suggest that policymakers in the region must strike the right balance between maximizing the net benefits from regional and global financial openness, and minimizing the potential costs of financial contagion and crisis.

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Bibliographic Info

Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 79.

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Length: 48 pages
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:ris:adbrei:0079

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Keywords: emerging Asia; financial integration; cross-border financial flows; crossborder asset holdings; convergence of asset returns;

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  1. Hui Tong & Shang-Jin Wei, 2010. "The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis," Working Papers 172010, Hong Kong Institute for Monetary Research.
  2. Park, Cyn-Young & Majuca, Ruperto & Yap, Josef, 2010. "The 2008 Financial Crisis and Potential Output in Asia: Impact and Policy Implications," Working Papers on Regional Economic Integration 45, Asian Development Bank.
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Cited by:
  1. Peter J. Morgan & Mario Lamberte, 2012. "Strengthening Financial Infrastructure," Finance Working Papers 23191, East Asian Bureau of Economic Research.
  2. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.

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