Financial Integration in East Asia


Hiroshi Fujiki

Akiko Terada-Hagiwara

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2007-30 | April 1, 2007

This paper examines the degree of integration into world financial markets and the impacts on several key macroeconomic variables of selected East Asian economies, and draws policy implications. According to our analysis, the degrees of integration into world financial markets in those economies are increasing. Regarding the impacts of increasing integration into world financial markets on several macroeconomic variables, we find three results. First, casual two-way plots among macroeconomic variables do not support the theoretical prediction of reduction in relative consumption volatility. Second, the saving-investment correlation is higher than those of in Euro area economies. Third, the degrees of smoothing of idiosyncratic shock by cross-holding of financial assets are lower than Euro area economies. Those results suggest two policy implications. First, there’s some room for improvement in welfare gains in those economies by further risk sharing. Second, holding all other conditions given, the increasing integration into world financial markets alone is unlikely to provide a sound ground for a currency union in East Asia at this stage.

Article Citation

Terada-Hagiwara, Akiko, and Hiroshi Fujiki. 2007. “Financial Integration in East Asia,” Federal Reserve Bank of San Francisco Working Paper 2007-30. Available at