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Financial Integration and Economic Growth: Should Asia Emulate Europe?

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  • Selvarajan, Sonia Kumari

    (University of Malaya, Malaysia)

  • Ab-Rahim, Rossazana

    (University Malaysia Sarawak, Malaysia)

Abstract

The Asian financial crisis of 1997~1998 was the catalyst for the movement toward regional cooperation between Asian countries, having triggered the common interests and vulnerabilities among the affected nations. As a result, policymakers have resorted to financial integration to unleash their potentials. Nevertheless, this approach is still in its infancy, largely underpinned by the heterogeneity in institutional and structural characteristics of the financial systems between countries. The authorities are cautious, as there is a trade-off between liquidity of capital markets and financial/economic stability. Considering these scenarios, the present study attempts to examine the dynamic relationship between financial integration and growth in Asian regions. Specifically, this study aims to investigate the financial-growth nexus pre-crisis (1980~1995) and post-crisis (1998~2015) as well as throughout the study period (1980~2015). The results of this study show a significant financial-growth relationship pre-crisis, but the impact wanes in the post-crisis and overall time periods. The results indicate to policymakers the heterogeneous characteristics of each country and to what extent financial integration should be emulated from their European counterparts.

Suggested Citation

  • Selvarajan, Sonia Kumari & Ab-Rahim, Rossazana, 2020. "Financial Integration and Economic Growth: Should Asia Emulate Europe?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(1), pages 191-213.
  • Handle: RePEc:ris:integr:0796
    DOI: 10.11130/jei.2020.35.1.191
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    More about this item

    Keywords

    Financial Integration; Economic Growth; Asia; Europe;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F15 - International Economics - - Trade - - - Economic Integration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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