Abstract
AbstractThe central objective of this paper is to empirically evaluate the degree of linkages among East Asian equity and bond markets. Using data from the IMF’s Coordinated Portfolio Investment Survey (CPIS), we find that intra‐East Asian financial asset holdings of four East Asian countries – Japan, Korea, Hong Kong and Singapore – are larger than the levels predicted by the financial gravity model. However, our analysis suggests that this result is likely to be driven by intra‐regional trade linkages and reflect those linkages. Therefore, the salient implication for regional policymakers is that they should continue to promote intra‐regional financial integration. This paper also aims to analyse the impact of three different types of country‐specific risks – political, economic and financial risks – on investment from the four countries. This analysis yields a clear positive relationship between destination‐country risk, in particular political risk, and capital inflows.
Highlights
A noticeable feature of East Asian economies’ economic success has been the growing integration of their goods markets
Columns 1 and 4 present the estimates for equities and bonds, respectively, when we control for fixed effects only in the source country, while in columns 2 and 5 we control for fixed effects in both source and partner countries
Having estimated the aggregated tendency of the four East Asian economies’ crossborder holdings of equities and long-term bonds, we examine whether our aggregated estimates for the EASIA dummy in the baseline specification are dominated by any particular source economy
Summary
A noticeable feature of East Asian economies’ economic success has been the growing integration of their goods markets. The PRC has become a key location for assembling parts and components produced in the rest of the region. While this type of intraregional trade promotes the region’s productive efficiency and contributes to its role as a global manufacturing hub, it is driven by final demand from elsewhere, in particular the United States. There is a large and growing trade in final goods among the region’s countries. The evidence strongly indicates that East Asia’s goods markets are highly integrated and the degree of integration has been increasing over time
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
