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Financial Integration and Economic Growth: Should Asia Emulate Europe?

Sonia Kumari Selvarajan () and Rossazana Ab-Rahim ()
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Sonia Kumari Selvarajan: University of Malaya, Malaysia, Postal: Faculty of Economics and Administration, University of Malaya,, 50603
Rossazana Ab-Rahim: University Malaysia Sarawak, Malaysia, Postal: University Malaysia Sarawak, 94300, Kota Samarahan, Sarawak, Malaysia

Journal of Economic Integration, 2020, vol. 35, issue 1, 191-213

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.

Keywords: Financial Integration; Economic Growth; Asia; Europe (search for similar items in EconPapers)
JEL-codes: C23 F15 O47 (search for similar items in EconPapers)
Date: 2020
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