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Trade and Financial Integration in East Asia: Effects on Co-movements

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  • Kwanho Shin
  • Chan-Hyun Sohn

Abstract

In this paper we explore three important areas where deeper trade and financial integration in East Asia can influence: (1) business cycle co-movements in the region, (2) the extent of risk sharing across countries and (3) price co-movements across countries. We find evidence that trade integration enhances co-movements of output but not of consumption across countries. Especially the fact that trade integration does not raise co-movements of consumption as much as that of output is interpreted as trade integration does not improve the extent of risk sharing. Co-movements of price arise most significantly as trade integration deepens, lowering the border effects and allowing better opportunities for resource reallocation across countries. In contrast, financial integration demonstrates much weaker evidence of enhancing co-movements across countries. Deeper financial integration improves price co-movements weakly but does not enhance output or consumption co-movements at all. However, since the current level of financial integration in East Asia is quite low, our evidence is too early to firmly determine the role of financial integration. Copyright 2006 The Authors Journal compilation Blackwell Publishing Ltd. 2006 .

Suggested Citation

  • Kwanho Shin & Chan-Hyun Sohn, 2006. "Trade and Financial Integration in East Asia: Effects on Co-movements," The World Economy, Wiley Blackwell, vol. 29(12), pages 1649-1669, December.
  • Handle: RePEc:bla:worlde:v:29:y:2006:i:12:p:1649-1669
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    1. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
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    Cited by:

    1. Kwanho Shin, 2008. "Global and Regional Shocks: Challenges to Asian," Working Papers id:1788, eSocialSciences.
    2. Fidrmuc, Jarko & Korhonen, Iikka, 2010. "The impact of the global financial crisis on business cycles in Asian emerging economies," Journal of Asian Economics, Elsevier, vol. 21(3), pages 293-303, June.
    3. Miankhel, Adil Khan & Kalirajan, Kaliappa & Thangavelu, Shandre, 2010. "Integration, decoupling and the global financial crisis: A global perspective," MPRA Paper 22837, University Library of Munich, Germany.
    4. Nabil Alimi, 2015. "The Effect of Trade, Specialization and Financial Integration on Business Cycles Synchronization in Some Mediterranean Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(1), pages 110-118, January.
    5. Jarko Fidrmuc & Iikka Korhonen & Ivana Bátorová, 2013. "China in the World Economy: Dynamic Correlation Analysis of Business Cycles," CESifo Economic Studies, CESifo, vol. 59(2), pages 392-411, June.
    6. Balcilar, Mehmet & Kutan, Ali M. & Yaya, Mehmet E., 2017. "Financial integration in small Islands: The case of Cyprus," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 201-219.
    7. Park, Donghyun & Shin, Kwanho, 2015. "Financial Integration in Asset and Liability Holdings in East Asia," ADB Economics Working Paper Series 444, Asian Development Bank.
    8. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Regionalization vs. globalization," Working Papers 2013-002, Federal Reserve Bank of St. Louis.
    9. Andrew Hughes Hallett & Christian Richter, 2011. "Trans-Pacific Economic Relations and US-China Business Cycles : Convergence within Asia versus US Economic Leadership," Development Economics Working Papers 23244, East Asian Bureau of Economic Research.
    10. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    11. repec:hhs:bofitp:2008_007 is not listed on IDEAS
    12. Dufrénot, Gilles & Keddad, Benjamin, 2014. "Business cycles synchronization in East Asia: A Markov-switching approach," Economic Modelling, Elsevier, vol. 42(C), pages 186-197.
    13. Tara Sinclair & Yeuqing Jia, 2010. "Permanent and Transitory Macroeconomic Relationships between China and the Developed World," Working Papers 2010-08, The George Washington University, Institute for International Economic Policy.
    14. repec:bla:apacel:v:31:y:2017:i:2:p:115-122 is not listed on IDEAS
    15. Andrew Hughes Hallett & Christian Richter, 2009. "Economics in the Backyard: How Much Convergence is there between China and her Special Regions?," The World Economy, Wiley Blackwell, vol. 32(6), pages 819-861, June.
    16. Berdiev, Aziz N. & Chang, Chun-Ping, 2015. "Business cycle synchronization in Asia-Pacific: New evidence from wavelet analysis," Journal of Asian Economics, Elsevier, vol. 37(C), pages 20-33.
    17. Nnyanzi John Bosco, 2016. "Trade Openness and Risk Sharing in Sub-Saharan Africa: Do Institutions and Financial Depth Matter?," Global Economy Journal, De Gruyter, vol. 16(1), pages 161-187, March.
    18. Andrew Hughes Hallett & Christian Richter, 2009. "Is the US no longer the economy of first resort? Changing economic relationships in the Asia-Pacific region," International Economics and Economic Policy, Springer, vol. 6(2), pages 207-234, July.
    19. Anders Johansson, 2010. "China's financial market integration with the world," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 8(3), pages 293-314.
    20. Christian Dreger & Yanqun Zhang, 2011. "The Chinese Impact on GDP Growth and Inflation in the Industrial Countries," Discussion Papers of DIW Berlin 1151, DIW Berlin, German Institute for Economic Research.
    21. Moneta, Fabio & Rüffer, Rasmus, 2009. "Business cycle synchronisation in East Asia," Journal of Asian Economics, Elsevier, vol. 20(1), pages 1-12, January.
    22. Capannelli, Giovanni & Filippini, Carlo, 2009. "East Asian and European Economic Integration: A Comparative Analysis," Working Papers on Regional Economic Integration 29, Asian Development Bank.

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