Assessing East Asian Financial Cooperation and Integration

Abstract

Financial integration is less pronounced in East Asia than among states in Europe and North America or compared to economic integration within the region. Cross-border trade flows, direct investment and investment in capital goods have long been greater and faster growing than other investment flows, while regional institutional and legal structures are scarce and frequently insubstantive. This dichotomy persists despite suggestions since the early 1990s that Asian financial integration would accelerate, especially following the Asian financial crisis of 1997-98 and including national enthusiasm for the World Trade Organization. This paper suggests explanations in legal, governance and institutional frameworks for the paradox of modest financial integration, despite increasing regional cooperation, accompanying robust economic growth and trade integration. However, the current global financial crisis provides opportunities for the region to endorse greater financial integration, albeit at the sacrifice of increasing levels of state sovereignty in order to function effectively, with the example of an Asian Monetary Fund serving as one example of such a potentially significant initiative.

Keywords: financial integration, financial regulation, financial liberalisation, Chiang Mai Initiative, Asian Monetary Fund, Asian Bond Market Initiative, ASEAN 3