Financial Integration in Asset and Liability Holdings in East Asia

Abstract

Findings from the paper generally support the conventional wisdom that East Asian countries are more financially integrated with global financial centers than they are with each other. This is confirmed by econometric analysis based on financial gravity equations. Results of additional econometric analysis indicate that the diversification of liability holdings can mitigate financial instability due to global financial shocks. This suggests that a possible indirect benefit of regional financial integration is reduced vulnerability to such shocks.