Financial Market Integration of South Asian Countries: Panel data Analysis

Hasan Mohsin and P Rivers

MPRA Paper from University Library of Munich, Germany

Abstract: According to Frankel (1992) in order to find financial integration from Feldstein Horoika (FH, 1980) model, the real interest parity must hold. This paper estimates the degree of financial market integration of South Asian countries i.e. Pakistan, India, Bangladesh, Sri Lanka and Nepal with both the techniques. The study finds some degree of integration with FH model has which increased after 1990s, post liberalization period. Furthermore, Panel Unit Root techniques i.e. LLC, IPS and Hadri has been used to estimate the real interest rate differentials (RIDs) of South Asian countries are found to be stationary with USA, Canada, UK, Germany, Sweden, Netherland, Australia, Malaysia, Indonesia, South Korea, Singapore, China and Japan. The empirical evidence of integration with both the techniques in my study is unique in the literature. Even though, the RIDS technique provides strong evidence of integration, correlation between savings and investment is still significant.

Keywords: Financial Integration; interest rate parity; savings investment correlation; South Asian economy (search for similar items in EconPapers)
JEL-codes: E2 F36 (search for similar items in EconPapers)
Date: 2010-07, Revised 2010-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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