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The Role of Financial Integration in East Asia in Promoting Regional Growth and Stability

Listed author(s):
  • Chaipat Poonpatpibul

    (Bank of Thailand)

  • Surach Tanboon

    (Bank of Thailand)

  • Pornnapa Leelapornchai

    (Bank of Thailand)

Registered author(s):

    This paper examines the role of financial integration in promoting growth and stability in East Asia. It first examines the degree of financial integration and finds that East Asia is more integrated with the developed markets than with regional markets. It then proceeds to investigate the benefits of regional financial integration on economic growth. Intraregional foreign direct investment is found to have a crucial role in enlarging trade within the region. Financial integration can also lead to better allocation of funds within the region, lower risk premium and cost of capital, and financial market deepening. However, financial integration may pose higher risks on economic stability via greater volatility of capital flows which can be magnified by increasing cross-border linkages. As East Asian countries will likely be exposed to a variety of new types of risks with greater international financial integration, regional financial cooperation will have to play an important role. Strengthening regional surveillance system, establishing regional crisis prevention and resolution framework, and building domestic and regional financial infrastructure particularly for long-term regional financing are necessary for enhancing long-term macroeconomic and financial stability as well as competitiveness of the region.

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    File URL: http://www.bot.or.th/Thai/EconomicConditions/Semina/symposium/Symposium_DocLoad/paper6_2549.pdf
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    Paper provided by Monetary Policy Group, Bank of Thailand in its series Working Papers with number 2006-05.

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    Length: 67 pages
    Date of creation: May 2006
    Handle: RePEc:bth:wpaper:2006-05
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    10. Eswar S. Prasad & Kenneth Rogoff & Shang-Jin Wei & M. Ayhan Kose, 2007. "Financial Globalization, Growth and Volatility in Developing Countries," NBER Chapters,in: Globalization and Poverty, pages 457-516 National Bureau of Economic Research, Inc.
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    14. William H. Branson & Conor N. Healy, 2009. "Monetary and Exchange Rate Policy Coordination in ASEAN+1," Chapters,in: Towards Monetary and Financial Integration in East Asia, chapter 9 Edward Elgar Publishing.
    15. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    16. Mitsuyo Ando & Fukunari Kimura, 2005. "The Formation of International Production and Distribution Networks in East Asia," NBER Chapters,in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 177-216 National Bureau of Economic Research, Inc.
    17. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
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