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The Chinese Economies in Global Context: The Integration Process and Its Determinants

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  • Yin-Wong Cheung
  • Menzie D. Chinn
  • Eiji Fujii

Abstract

The linkages between the People's Republic of China (PRC) and the other Chinese economies of Hong Kong and Taiwan are assessed, and compared against those with Japan and the US. We first characterize the time series behavior of variables corresponding to three criteria of integration, namely real interest parity, uncovered interest parity, and relative purchasing power parity. There is evidence that these parity conditions tend to hold over longer periods between the PRC and all other economies, although they do not hold instantaneously. In general, the magnitude of the deviations from the parity conditions is shrinking over time. Overall, however, Hong Kong exhibits indications of a more advanced level of integration with the PRC. We also find that evidence is surprisingly positive for integration with the US. We then turn to examining the determinants of the degree of integration. Regression results suggest that the degrees of financial and real integration depend upon the extent of capital controls, foreign direct investment linkages, as well as the magnitude of exchange rate volatility.

Suggested Citation

  • Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2003. "The Chinese Economies in Global Context: The Integration Process and Its Determinants," NBER Working Papers 10047, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10047
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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