Does Financial Integration Matter for Financial Development? Evidence from the East Asian and Pacific Region

Farhad Taghizadeh-Hesary (), Nguyet Thi Minh Phi (), Hanh Hoang Thi Hong () and Vu Tuan Chu ()
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Nguyet Thi Minh Phi: Academy of Finance, Vietnam / Centre for Applied Economics and Business Research, Vietnam, Postal: Faculty of Banking and Insurance, Academy of Finance, 58 Le Van Hien, Duc Thang Ward, Bac Tu Liem, District, Hanoi, Vietnam, Tel: +84 829 010 574
Hanh Hoang Thi Hong: Academy of Finance, Hanoi, Vietnam, Postal: Faculty of Business Administration, Academy of Finance, Address: 58 Le Van Hien, Duc Thang Ward,, Bac Tu Liem District, Hanoi, Vietnam, Tel: +84 981 229 391
Vu Tuan Chu: National Economics University, Vietnam / Centre for Applied Economics and Business Research, Vietnam, Postal: Faculty of Business Administration, National Economics University, Address: 207 Giai Phong, Dong Tam, Ward, Hai Ba Trung District, Hanoi, Vietnam, Tel: +84 934675491

Journal of Economic Integration, 2019, vol. 34, issue 4, 591-618

Abstract: This paper assesses the impact of financial integration on financial development and establishes thresholds for materializing gains of financial advances from financial globalization using a sample of 34 countries from the East Asian and Pacific region. Following the approaches of Kose et al. (2011) and Asongu and De Moor (2016), we test non-linearity within the financial openness and financial development nexus through semi-parametric ordinary least-squares regression, and then, we develop threshold dynamics models. According to our findings, the effect of financial integration on financial development significantly changes across different financial inflows. When using external debt as a proxy for financial openness, there exists a robust significant inverted U-shaped relationship between financial integration and financial development. The empirical findings also suggest that the financial integration-development nexus is contingent on the level of trade openness, national income, and institutional quality. The results are robust to different measures of financial development and integration, the inclusion of other determinants of financial development, and considerations of endogeneity.

Keywords: Financial integration; Financial development; Trade openness; GDP per capita; East Asian and Pacific region (search for similar items in EconPapers)
JEL-codes: F36 F40 O16 O55 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0782

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