The Chinese Economies in Global Context: The Integration Process and Its Determinants

Yin-Wong Cheung, Menzie Chinn and Eiji Fujii

No 72005, Working Papers from Hong Kong Institute for Monetary Research

Abstract: The linkages between the People's Republic of China and the other Chinese economies of Hong Kong and Taiwan are assessed, and compared against the linkages with Japan and the US. We first characterize the time series behavior of three criteria of integration, namely real interest parity, uncovered interest parity, and relative purchasing power parity. There is evidence that these parity conditions tend to hold over longer periods between the People's Republic of China and all other economies, although they do not hold instantaneously. Overall, the magnitude of deviations from the parity conditions is shrinking over time. Amongst all, however, Hong Kong exhibits indications of a more advanced level of integration with the mainland. We also find that evidence is surprisingly positive for integration with the US. We then turn to examining the determinants of the degree of integration. Regression results suggest that the degree of financial and real integration depend upon the extent of capital controls, foreign direct investment linkages as well as exchange rate volatility.

Keywords: uncovered interest parity; real interest parity; purchasing power parity; exchange rates; capital mobility; market integration (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-07
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Related works:
Journal Article: The Chinese economies in global context: The integration process and its determinants (2006)
Working Paper: The Chinese Economies in Global Context: The Integration Process and Its Determinants (2003)
Working Paper: The Chinese Economies in Global Context: The Integration Process and Its Determinants (2003)
Working Paper: The Chinese Economies in Global Context: The Integration Process and Its Determinants (2003)
Working Paper: The Chinese Economies in Global Context: The Integration Process and Its Determinants (2003)
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