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    Has Regional Integration Led To Greater Risk-Sharing In Asia?

    Ng, Thiam Hee; Yarcia, Damaris Lee | July 2014
    Abstract
    The 1997–1998 Asian financial crisis revealed the latent risks present in an increasingly integrated global economy and how virulent these risks can be when roused from dormancy. Given the inevitability of integration, the challenge is how to maximize its benefits while minimizing its costs. One benefit of greater integration, particularly financial integration, is that countries can diversify their risks, thus allowing them to smooth out their consumption. This paper analyzes whether the degree of risk-sharing in East Asia has improved along with the observed rise in integration in the region. Higher risk-sharing is expected to result in (i) higher intraregional correlation of consumption across time and relative to output, and (ii) a higher residual in the panel regression of consumption on output. The results show that risk-sharing continues to be low in Asia. The increase in cross-economy correlation in consumption coincided with an even higher cross-economy correlation in output. Furthermore, the correlation between domestic consumption and domestic output growth remains high. And finally, correlation within the region is lower than correlation with the global economy. These findings suggest that higher consumption correlation is the result of stronger economic ties rather than greater risk-sharing
    Citation
    Ng, Thiam Hee; Yarcia, Damaris Lee. 2014. Has Regional Integration Led To Greater Risk-Sharing In Asia?. © Asian Development Bank. http://hdl.handle.net/11540/1288. License: CC BY 3.0 IGO.
    Keywords
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Erosion
    Market Development
    Economics
    Erosion
    International Economics
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
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    Citable URI
    http://hdl.handle.net/11540/1288
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    Author
    Ng, Thiam Hee
    Yarcia, Damaris Lee
    Theme
    Finance
    Economics
    Small Medium Business
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise