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Financial Integration in Emerging Asia: Challenges and Prospects

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Abstract
Using both quantity- and price-based measures of financial integration, this paper shows an increasing degree of financial openness and integration in emerging Asian markets. This paper also assesses the impact of a regional shock relative to a global shock on local equity and bond markets. The findings of this paper suggest that the region’s equity markets are integrated more globally than regionally, although the degrees of both regional and global integration have increased significantly since the 1997/98 Asian financial crisis. However, emerging Asia’s local currency bond markets remain generally segmented, being neither regionally nor globally integrated. A case can be made for the benefits of increased regional integration of financial markets. Financial integration at the regional level allows for the region’s economies to benefit from allocation efficiency and risk diversification. The findings of this paper suggest that policymakers in the region must strike the right balance between maximizing the net benefits from regional and global financial openness, and minimizing the potential costs of financial contagion and crisis.

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  • Park, Cyn-Young & Lee, Jong-Wha, 2011. "Financial Integration in Emerging Asia: Challenges and Prospects," Working Papers on Regional Economic Integration 79, Asian Development Bank.
    • Handle: RePEc:ris:adbrei:0079
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    References listed on IDEAS

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    1. Jiandong Ju & Shang-Jin Wei, 2014. "A Solution to Two Paradoxes of International Capital Flows," Economic and Political Studies, Taylor & Francis Journals, vol. 2(1), pages 3-43, January.
    2. Hui Tong & Shang-Jin Wei, 2011. "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2023-2052.
    3. Park, Cyn-Young & Majuca, Ruperto & Yap, Josef, 2010. "The 2008 Financial Crisis and Potential Output in Asia: Impact and Policy Implications," Working Papers on Regional Economic Integration 45, Asian Development Bank.
    4. Shang-Jin Wei & Yi Wu, 2002. "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 461-506, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    emerging Asia; financial integration; cross-border financial flows; crossborder asset holdings; convergence of asset returns;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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