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Measuring Regional Market Integration in Developing Asia: a Dynamic Factor Error Correction Model (DF-ECM) Approach

  • Qin, Duo

    ()

    (Queen Mary, University of London)

  • Cagas, Marie Anne

    ()

    (University of the Philippines)

  • Ducanes, Geoffrey

    (School of Economics)

  • Magtibay-Ramos, Nedelyn

    ()

    (Asian Development Bank)

  • Quising, Pilipinas F.

    ()

    (Asian Development Bank)

This paper examines empirically the dynamic process of regional market integration in twelve Asian economies using a new modeling approach combining DF with ECM. This approach enables us to obtain latent regional dynamic factors which correspond well with the 'foreign' parity variables in theory when a market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an errorcorrection form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data from the past decade.

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Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 8.

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Length: 38 pages
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:ris:adbrei:0008
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