Financial Integration and Cooperation in East Asia: Assessment of Recent Developments and Their Implications

Hong Bum Jang
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Hong Bum Jang: Visiting Economist, Institute for Monetary and Economic Studies, Bank of Japan/ Director-General, Bank of Korea (E-mail: jhb@bok.or.kr)

No 11-E-05, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper examines the current situation pertaining to trade and financial integration in East Asia from various approaches and discusses potential linkages between intra-regional trade and financial integration. This paper also offers policy suggestions based upon its analyses that take full account of the post-global crisis policy landscape. The main conclusions drawn from this study are as follows: (i) the overall degree of intra-regional trade and financial integrations in East Asia still remain insufficient, as the regionfs financial integration lags far behind its trade integration; (ii) inter-regional links appear stronger than intra-regional links in East Asian economies; and (iii) intra-regional trade and portfolio investment flows in East Asia generally show positive correlations. Developing East Asia would benefit from wider regional mechanisms with the enhancement of intra- regional trade and financial integration. Since East Asia is at a critical turning point, this paper suggests that East Asian countries strive to strengthen the regional mechanisms with smoothly functioning, integrated regional markets while effectively controlling its risks. They should focus especially on enhancing trade policy cooperation, expediting capital market development, effectively managing cross-border portfolio investments, and strengthening regional safety networks. The three major countries in the region-Japan, China, and Korea-should take the lead in facilitating the integration process.

Keywords: Trade and Financial Integration; Cross-Border Investment and Settlement; Trade-Finance Linkage; Free Trade Agreements; Asian Bond Market; East Asia; Global Economic and Financial Crisis (search for similar items in EconPapers)
JEL-codes: E44 F15 F42 F59 G01 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2011-02
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