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The precise form of financial integration: Empirical evidence for selected Asian countries

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  • Gan, Pei-Tha

Abstract

A noteworthy attribute of the empirical studies on financial integration is that many published papers rely on the approximate form of financial integration by studying the degree of regional financial integration. Therefore, the approximate form of financial integration cannot be used to refute the precision of the financial integration simply because of complex data collection procedures and the misspecification of a commonly used model. To overcome this shortcoming, this study uses the precise form to specify the measures of financial integration and examines the empirical validity based on a sample of ASEAN-5 countries plus 3 additional countries. Using the panel error correction method, the findings provide a number of policy implications; the precise form of financial integration can characterise the capital mobility conditions and the degree of sterilised foreign exchange intervention, and serve as a guiding policy instrument for fine-tuning the disruptions in the foreign capital market through sterilised foreign exchange intervention in exchange rate misalignments without abandoning the role of domestic interest rate policy that eventually promotes orderly financial integration.

Suggested Citation

  • Gan, Pei-Tha, 2014. "The precise form of financial integration: Empirical evidence for selected Asian countries," Economic Modelling, Elsevier, vol. 42(C), pages 208-219.
  • Handle: RePEc:eee:ecmode:v:42:y:2014:i:c:p:208-219
    DOI: 10.1016/j.econmod.2014.07.003
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    Cited by:

    1. Komatsubara, Tadaaki & Okimoto, Tatsuyoshi & Tatsumi, Ken-ichi, 2017. "Dynamics of integration in East Asian equity markets," Journal of the Japanese and International Economies, Elsevier, vol. 45(C), pages 37-50.
    2. Boubakri, Salem & Guillaumin, Cyriac, 2015. "Regional integration of the East Asian stock markets: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 136-160.
    3. 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.

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