The Economic Base Of The East Asian Monetary Integration, Scalability Studies

In the sixties of last century, Mundell created the theory of Optimal Currency Areas (OCA) which was improved by the followers. In 1999, the establishment of the Euro areas siginified that the theory of OCA has applied in practice. In the second half of the 20th century, as an economy region adjacent to each other, East Asia has made great contribution to the growth of the world economy, which is still be strengthened till now. With the development of economy, East Asian countries have attempted to conduct a series of economic and financial cooperation, such as the formation of the ASEAN Free Trade Area and China-ASEAN Free Trade Area, the subscription of the Chiang Mai Initiative and the foundation of East Asian Monetary Fund. These cooperations promoted the process of regional integration vigorously in East Asia. However, East Asian countries spoke nothing in the formation of currency area. Does the economy itself affect the process of cooperation? Or the heterogeneity in the field of economy, politics and culture hinder the process of cooperation? Or the East Asia historical issues of World War II, territorial disputes and the lack of dominant country form an obstacle to the formation of currency area? To answer these questions, this dissertation carries out the research on if the East Asian Economy be suitable for forming a currency area. On the base of the concept definition and commenting on the theory of OCA, firstly the paper expansively concludes that the gravity of each countries in East Asia by geo-economics. Secondly the paper expansively concludes that the dissertation should comment on the feasibility of forming a currency area in East Aisa from the point of view of economy growth, finance and international trade. Through testing which countries are suitable for forming a currency area in East Asia by use of single and integrated index. Thirdly the paper solves the problem of labor force flowing poorly and unbalanced development through Wage flexibility hypothesis and the relaxation of Homogeneous constraints. Lastly the paper analyzes several problems which can't be ignored. The main contents are as follows.Chapter I is introduction. On the basis of setting forth the background of chosing the topic, the paper introduces simply the finacial and currency cooperation in East Asia. For the purpose of understanding the research goal of the dissertation, the paper defines the East Asia, monetary integration, currency area and economic foundations,etc. and annotates the connotation and extension of integrations. The second chapter sets forth the history of monetary integration, the OCA theory and the research framework. Firstly this chapter combs various forms of monetary integration in the history, then sets forth the found basis of the euro. Secondly through commenting on the theory of OCA since Mundell, the paper finds out the relationship of the OCA theories and some shortcomings in practice, then the paper analyzes the research on the monetary integration of East Asia and its shortcomings. The paper puts forward the analytical framework with the definition of the concepts in the first chapter, it includes three main aspects of the feasibility of monetary integration in East Asia. Firstly it expansively tests the feasibility of monetary integration in East Asia from the aspect of economic growth, finance and international trade. Secondly it expansively tests the feasibility of monetary integration comprehensive in East Asia. Thirdly it solves the suspicion which brings by the labor force flowing poorly and unbalanced development in East Asia.Chapter III, IV and V discuss respectively the feasibility of forming a currency area from the fields of economy, finance-and international trade expansively. Firstly, chapter III elicits that, for the huge gravitation, East Asian countries who abut each other are suitable for forming a currency area. Then the paper educes that, for East Asian countries'rapid economy growth, the devoloping countries in East Asia can realize Solow-style "catch up" by analyzing the convergence of economy growth. Chapter IV discusses the convergence of rate, inflation, exchange rate, stock index fluctuation, deficit rate and the rate of debt burden in East Asian countries. However, instead of copying the Maastricht Treaty, the paper excogitates some convergence conditions which are suitable for East Asian countries who satisfy most of the convergence conditions no less than the EU countries did in 1992. In chapter V, the paper first analyzes the ratio of dependence on foreign trade which is essential to form a currency area. Then it analyzes intra-regional trade which shows the extent of economy relationship of regional countries in East Asia. Lastly it analyzes the intra-industry trade which can promote East Asian countries'economy cycle convergence, as is important for the transnational central bank to take macro-economic control and suitable for East Asian countries to form a currency area. Through three chapters analysis of all kinds of single index, most of East Asian countries can satisfy the condition of forming a currency area.Chapter VI is comprehensive evaluation. Based on the analysis of chapter III, IV and V, In this chapter, the paper evaluates comprehensively the feasibility of forming a currency area in East Asian countries by designing up a set of indexes and selecting a scientific evaluation method. The paper concludes that which countries are suitable for forming a currency area, which countries need some constraint conditions before joining the currency area, and which countries are not yet appropriate to join the currency area.Chapter VII is the analysis of factor fluidity and unbalanced development. Although it has passed the test of all kinds of index in East Asia, for the reason of poor labor force flowing and economic developing unbalance, some people will suspect the feasibility of forming a currency area in East Asia. So the paper solves the problem of labor force flowing poorly and unbalanced development through wage flexibility hypothesis and the relaxation of homogeneous constraintsChapter VIII is several problems which can't be ignored in the process of monetary integration in East Asia. Since most of countries are suitable for forming a currency area through the test of single index and comprehensive index, why the process of forming a currency area is so slow? The reason is that there are several problems which can't be ignored in the process of monetary integration in East Asia, if these problems can't be solved effectively, then it is not possible to form a currency area in East Asia. The first problem is how to calculate the cost and income of forming a currency area in East Asia; the second problem is how to deal with the dispute of the domain in East Asia; the third problem is how to treat the historical problem leaving behind by World War II; the fourth problem is who will be the dominant country in the process of forming a currency area in East Asia. Only these problems are effectively solved and it passes the test, East Asia maybe forms a currency area.Chapter IX is the process of monetary integration of the post-crisis era in East Asia and the conclusion of the paper.