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Why Don't Asians Invest in Asia? The Determinants of Cross-Border Portfolio Holdings

Author

Listed:
  • Alicia García-Herrero

    (Banco Bilbao Vizcaya Argentina (BBVA), 43/F, Two International Finance Centre, Hong Kong, SAR.)

  • Philip Wooldridge

    (Bank for International Settlements, Representative Office for Asia and the Pacific, 78/F, IFC Two, 8 Finance Street, Hong Kong, SAR.)

  • Doo Yong Yang

    (Asian Development Bank Institute, Kasumigaseki BL 8F, 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo, Japan.)

Abstract

This paper seeks to understand why Asian foreign investment is concentrated in financial markets outside of the region instead of in Asian markets. We analyze empirically the geographical composition of the cross-border portfolio holdings of more than 40 source countries. We compare these benchmark results with those of four subgroups: advanced industrial economies, emerging market economies, European economies, and Asia-Pacific economies. The lack of liquidity in Asian financial markets turns out to be one reason why Asian capital is invested predominantly outside the region, notwithstanding the short distances and large trade flows between Asian economies. Initiatives to improve the liquidity of Asian financial markets, therefore, may be a useful way to stimulate financial integration within the region. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Suggested Citation

  • Alicia García-Herrero & Philip Wooldridge & Doo Yong Yang, 2009. "Why Don't Asians Invest in Asia? The Determinants of Cross-Border Portfolio Holdings," Asian Economic Papers, MIT Press, vol. 8(3), pages 228-246, Fall.
  • Handle: RePEc:tpr:asiaec:v:8:y:2009:i:3:p:228-246
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    References listed on IDEAS

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    1. Peter G. Warr, 1999. "What Happened to Thailand?," The World Economy, Wiley Blackwell, vol. 22(5), pages 631-650, July.
    2. Jorgenson, Dale W, 1988. "Productivity and Postwar U.S. Economic Growth," Journal of Economic Perspectives, American Economic Association, pages 23-41.
    3. David Vines & Peter Warr, 2003. "Thailand's investment-driven boom and crisis," Oxford Economic Papers, Oxford University Press, vol. 55(3), pages 440-466, July.
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    Citations

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    Cited by:

    1. Didier, Tatiana & Llovet, Ruth & Schmukler, Sergio L., 2017. "International financial integration of East Asia and Pacific," Journal of the Japanese and International Economies, Elsevier, pages 52-66.
    2. Vahagn Galstyan & Philip Lane, 2010. "The Dynamics of Portfolio Holdings in Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp346, IIIS.
    3. repec:wsi:gjexxx:v:02:y:2013:i:02:n:s2251361213500067 is not listed on IDEAS
    4. Rabin Hattari & Ramkishen S. Rajan, 2011. "How Different are FDI and FPI Flows?: Does Distance Alter the Composition of Capital Flows?," Working Papers 092011, Hong Kong Institute for Monetary Research.
    5. repec:eee:quaeco:v:65:y:2017:i:c:p:88-96 is not listed on IDEAS
    6. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, pages 205-215.
    7. repec:eee:jebusi:v:92:y:2017:i:c:p:29-44 is not listed on IDEAS
    8. Boamah, Nicholas Addai & Watts, Edward J. & Loudon, Geoffrey, 2016. "Investigating temporal variation in the global and regional integration of African stock markets," Journal of Multinational Financial Management, Elsevier, pages 103-118.
    9. Hattari, Rabin & S. Rajan, Ramkishen, 2011. "How Different are FDI and FPI Flows?: Distance and Capital Market Integration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 499-525.
    10. repec:wsi:serxxx:v:58:y:2013:i:04:n:s0217590813500264 is not listed on IDEAS
    11. Boamah, Nicholas Addai, 2017. "The dynamics of the relative global sector effects and contagion in emerging markets equity returns," Research in International Business and Finance, Elsevier, pages 433-453.
    12. Gochoco-Bautista, Maria Socorro & Remolona, Eli M., 2012. "Going Regional: How to Deepen ASEAN's Financial Markets," ADB Economics Working Paper Series 300, Asian Development Bank.
    13. Olaf Unteroberdoerster & Runchana Pongsaparn, 2011. "Financial Integration and Rebalancing in Asia," IMF Working Papers 11/243, International Monetary Fund.
    14. Ganeshan Wignaraja, 2013. "Understanding Innovation in Production Networks in East Asia," Trade Working Papers 23395, East Asian Bureau of Economic Research.
    15. Cheung, Yin-Wong & Friedman, Daniel, 2009. "Speculative attacks: A laboratory study in continuous time," Journal of International Money and Finance, Elsevier, pages 1064-1082.

    More about this item

    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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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