Trade and financial integration in East Asia

Effects on co-movements

Kwanho Shin, Chan Hyun Sohn

Research output: Contribution to journalArticle

29 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)1649-1669
Number of pages21
JournalWorld Economy
Volume29
Issue number12
DOIs
Publication statusPublished - 2006 Dec 1

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evidence
Financial integration
Trade integration
Comovement
East Asia
business cycle
resources
Risk sharing
Resources
Business cycles
Border effect
Reallocation

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance
  • Political Science and International Relations

Cite this

Trade and financial integration in East Asia : Effects on co-movements. / Shin, Kwanho; Sohn, Chan Hyun.

In: World Economy, Vol. 29, No. 12, 01.12.2006, p. 1649-1669.

Research output: Contribution to journalArticle

Shin, Kwanho ; Sohn, Chan Hyun. / Trade and financial integration in East Asia : Effects on co-movements. In: World Economy. 2006 ; Vol. 29, No. 12. pp. 1649-1669.
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