A Test of Financial Integration in East Asia

Abstract

The purpose of this paper is to examine the extent of financial integration occurring in East Asia. Increasing economic integration in East Asia over the last two decades has been evidenced by consistent growth in intra‐regional trade and investment. Greater economic integration in the region, accompanied by financial deregulation and liberalization, has contributed to greater financial integration. This study confirms increasing degree of financial market integration in East Asia by comparing movements of monthly money market rates before and after the Asian financial crisis. Convergence of interest rates across the countries in East Asia is examined by analyzing deviations, correlation coefficients and multivariate co‐integration tests of interest rates.