Research On Economic Effects Of East Asian Financial Integration

With the rapid development of the global economy,the transaction of the international trade and international investment are highly frequent across countries,so economic globalization has entered the new stage since the 20th century.In order to promote the economic development and reduce friction between different countries,some regional organizations have been established,such as the European Union and North American Free Trade Area.There is the trend that the economic globalization and regional economic integration are inextricably interwoven in the world.As the region with the most population and the fastest economic growth,Regional economic cooperation in East Asia has attracted the attention by academicians.The Asian financial crisis led to huge economic losses for East Asia area.The crisis made governments realize the fragility of the financial sector and the importance of regional cooperation in East Asian region.Therefore,the governments in East Asian began to push the regional financial cooperation after 1997.With the lapse of time,some scholars had the negative view of financial integration in East Asian,based on the global financial crisis and the strategy of the U.S.pivot to Asia.In this context,the paper will discuss some questions as follow:How far does financial integration have developed in the past twenty years?Did the process of financial integration be broke up by the global financial crisis in East Asia?According to the current situation in East Asia,whether or not these countries have obtained certain economic effects?Moreover,Can these economic effects be as the driving force to push the development of financial integration?In order to answer these questions accurately and systematically,this paper construct a theoretical framework of financial integration,based on the theory of the common market,financial geography and financial development.Then by introducing the situation of East Asia’s financial integration into the analysis framework,combining with the historical process,realistic foundation,restricting factors and economic effects,research route of financial integration is formed:the establishment of theory-theoretical analysis-empirical test.The logical framework is as follows:First of all,development of financial integration in East Asia is sorted out and normatively analyzed from the historical and realistic perspectives.It will provide historical and realistic basis for the financial integration deepened.Secondly,according to literature review in measuring of financial integration,some indicators are chosen to build the indicator system of East Asia’s financial integration.After that,using principal component analysis to examine the level of financial integration,this will lay the foundations for next chapter.Finally,this paper makes an empirical analysis of economic effects in three aspects:economic growth,risk sharing and welfare gains,respectively.On this basis,several factors are investigated based on the control variables,time,income and so on.These factors are expected as the driving forces of financial integration in East Asia.In this paper,a series of conclusions are drawn from theoretical and empirical analysis.Firstly,the degree of financial integration in East Asia has a upward trend with fluctuation over time.From the national level,the ranking of financial integration in each country is constantly changing.After the crisis in 2008,China and Malaysia have become the main drivers of financial integration in East Asian.Moreover,based on empirical analysis,financial integration have positive influence on economic growth,consumption risk sharing and welfare gain for East Asian countries.However,the size and significance of these economic effects will be different according to income levels.From economic growth,financial integration plays a significant role in developing countries,because of"late-mover advantage".In the consumption risk sharing,high-income countries have a higher effect than low-income countries in East Asia.The level of consumption risk sharing in Hong Kong and Singapore are highest,because both countries are financial centers.But in terms of the growth of consumption risk sharing,low-income countries are significantly faster than high-income countries.Based on welfare gains,developing countries share more welfare benefits than Asian developed countries.This conclusion is similar with outcome of economic growth effect.China and Malaysia have the most potential benefits and total welfare benefits among East Asian countries.Therefore,the East Asian countries should strengthen financial cooperation to acquire more benefits,especially for low-income countries.Furthermore,the degree of financial integration and economic effects are improved on conditions.According to qualitative analysis,there are several factors which influence the level of financial integration and economic effects,including economic level,macro policy,financial markets and financial regulation,exchange rate system and capital account control and so on.From the quantitative analysis,financial development and regulatory system are the two most important drivers which significantly affect financial integration and economic effects,especially for developing countries.In addition,trade openness,government expenditure and household consumption will also have an impact on economic effects.