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Welfare Implications of International Financial Integration

  • Lee, Jong-Wha


    (Asian Development Bank)

  • Shin, Kwanho


    (Department of Economics, Korea University)

Focusing on technology spillover from foreign direct investment (FDI) inflows, this paper investigates the welfare implications of financial integration. Calibrations of a neoclassical growth model with international technology diffusion show that when technology catch-up due to FDI inflows is considered, the welfare gains from financial integration substantially increase, which contrasts with the small gains from additional, capital-accumulation effects of financial integration. The estimates suggest that by further enhancing financial integration, emerging Asian economies, such as the People's Republic of China (PRC) and the largest four Association of Southeast Asian Nations (ASEAN) countries, will experience substantial welfare gains.

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Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 20.

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Length: 40 pages
Date of creation: 01 Nov 2008
Date of revision:
Handle: RePEc:ris:adbrei:0020
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