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Financial Integration in Emerging Asia: Challenges and Prospects
Author(s) -
PARK CynYoung,
LEE JongWha
Publication year - 2011
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/j.1748-3131.2011.01193.x
Subject(s) - financial integration , economics , equity (law) , emerging markets , diversification (marketing strategy) , financial crisis , bond , financial market , openness to experience , local currency , shock (circulatory) , regional integration , currency , financial contagion , finance , international economics , financial system , business , monetary economics , international trade , macroeconomics , medicine , psychology , social psychology , marketing , political science , law
Using both quantity‐ and price‐based measures of financial integration, the paper shows an increasing degree of financial openness and integration in emerging Asia. Assessing the impact of a regional shock relative to a global shock on local equity and bond markets, the findings 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 1997/1998 Asian financial crisis. However, emerging Asia's local currency bond markets remain generally segmented, being neither regionally nor globally integrated. There are potential benefits from 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. 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.