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Does Financial or Trade Integration Cause Instability? Evidence from Emerging and ASEAN Economies

Author

Listed:
  • Rakesh Padhan

    (Department of Management Studies, Indian Institute of Technology Roorkee, Uttarakhand, India.)

  • K.P. Prabheesh

    (Department of Liberal Arts, Indian Institute of Technology Hyderabad, India.)

Abstract

This study empirically examines the nexus amongst financial integration, trade integration, and instability in various emerging and Association of Southeast Asian Nations (ASEAN) economies. Using newly constructed financial integration indices and the Toda-Yamamoto causality test, it is found that (i) tremendous changes occurred in the levels of financial and trade integration in these economies during the COVID-19 pandemic; (ii) in most cases, financial integration caused exchange rate volatility, inflation volatility, and interest rate volatility, while trade integration caused credit volatility, exchange rate volatility, and growth volatility; and (iii) not all types of integration caused instability, and portfolio integration caused exchange rate instability in most cases.

Suggested Citation

  • Rakesh Padhan & K.P. Prabheesh, 2023. "Does Financial or Trade Integration Cause Instability? Evidence from Emerging and ASEAN Economies," Working Papers DP-2023-18, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2023-18
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial Integration; Trade Integration; Instability; Toda-Yamamoto Causality Test;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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