Trade and Financial Integration in East Asia: Effects on Co-movements

In this paper we explore three important areas where deeper trade and financial integration in East Asia can influence: (1) business cycle co‐movements in the region, (2) the extent of risk sharing across countries and (3) price co‐movements across countries. We find evidence that trade integration...

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Bibliographic Details
Published inWorld economy Vol. 29; no. 12; pp. 1649 - 1669
Main Authors Shin, Kwanho, Sohn, Chan-Hyun
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.12.2006
Subjects
ASEAN
Borders
Business Cycles
Capital movement
Consumption
Correlation
East Asia
East Asia - Economic planning
East Asia - Regional development
Economic integration
Export-import trade - East Asia
Financial integration
Gross domestic product
Integration
International capital market
International monetary economics
International trade
Output rate
Political Integration
Prices
Regional economics
Regionalism - East Asia
Risk
Risk sharing
Scandals
Studies
Time series
Trade flows
Trade Policy
East Asia
Asia, East
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Summary:In this paper we explore three important areas where deeper trade and financial integration in East Asia can influence: (1) business cycle co‐movements in the region, (2) the extent of risk sharing across countries and (3) price co‐movements across countries. We find evidence that trade integration enhances co‐movements of output but not of consumption across countries. Especially the fact that trade integration does not raise co‐movements of consumption as much as that of output is interpreted as trade integration does not improve the extent of risk sharing. Co‐movements of price arise most significantly as trade integration deepens, lowering the border effects and allowing better opportunities for resource reallocation across countries. In contrast, financial integration demonstrates much weaker evidence of enhancing co‐movements across countries. Deeper financial integration improves price co‐movements weakly but does not enhance output or consumption co‐movements at all. However, since the current level of financial integration in East Asia is quite low, our evidence is too early to firmly determine the role of financial integration.
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ISSN:0378-5920
1467-9701
DOI:10.1111/j.1467-9701.2006.00862.x