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Financial Market Integration of South Asian Countries: Panel data Analysis

Author

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  • Mohsin, H
  • Rivers, P

Abstract

According to Frankel (1992) in order to find financial integration from Feldstein Horoika (FH, 1980) model, the real interest parity must hold. This paper estimates the degree of financial market integration of South Asian countries i.e. Pakistan, India, Bangladesh, Sri Lanka and Nepal with both the techniques. The study finds some degree of integration with FH model has which increased after 1990s, post liberalization period. Furthermore, Panel Unit Root techniques i.e. LLC, IPS and Hadri has been used to estimate the real interest rate differentials (RIDs) of South Asian countries are found to be stationary with USA, Canada, UK, Germany, Sweden, Netherland, Australia, Malaysia, Indonesia, South Korea, Singapore, China and Japan. The empirical evidence of integration with both the techniques in my study is unique in the literature. Even though, the RIDS technique provides strong evidence of integration, correlation between savings and investment is still significant.

Suggested Citation

  • Mohsin, H & Rivers, P, 2010. "Financial Market Integration of South Asian Countries: Panel data Analysis," MPRA Paper 25774, University Library of Munich, Germany, revised Aug 2010.
  • Handle: RePEc:pra:mprapa:25774
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    File URL: https://mpra.ub.uni-muenchen.de/25774/1/MPRA_paper_25774.pdf
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    References listed on IDEAS

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    1. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
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    Cited by:

    1. Florent DEISTING & Sanjay SEHGAL & Piyush PANDEY, 2017. "Time Varying Integration amongst the South Asian Equity Markets: An Empirical Study," Working Papers 2016-2017_7, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Apr 2017.

    More about this item

    Keywords

    Financial Integration; interest rate parity; savings investment correlation; South Asian economy;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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