Measuring Financial Integration: The Network Approach

34 Pages Posted: 1 Jul 2015 Last revised: 2 Jul 2015

See all articles by Ying Xu

Ying Xu

The Australian National University

Jenny Corbett

Australian National University (ANU) - Crawford School of Public Policy; University of Oxford - Nissan Institute of Japanese Studies; Centre for Economic Policy Research (CEPR)

Date Written: June 14, 2015

Abstract

While deeper financial integration is often considered conducive to the efficient allocation of resources and risk sharing, an increasingly important policy concern is whether it brings greater vulnerability to shocks. To address the latter concern, this paper uses a different approach to measuring financial integration, highlighting interconnectedness in a network of financial flows. Applying an adapted version of eigenvector centrality, often used in network analysis, the new measure provides a nuanced picture of financial integration and interconnectedness in the global and regional financial networks. The United States and the United Kingdom remain the ‘core’ in the global banking network, with all other countries scattered in the ‘periphery’. With China rapidly integrating with the region, the Asian banking network increasingly resembles the structure of the global network. This is the beginning of essential work to discover whether such network structures pose an added threat of shock transmission around the region.

Suggested Citation

Xu, Ying and Corbett, Jennifer M., Measuring Financial Integration: The Network Approach (June 14, 2015). CIFR Paper No. WP062/2015. Available at SSRN: https://ssrn.com/abstract=2618283 or http://dx.doi.org/10.2139/ssrn.2618283

Ying Xu (Contact Author)

The Australian National University ( email )

J.G. Crawford Building No. 132
ANU
Canberra, Australian Capital Territory 2601
Australia

Jennifer M. Corbett

Australian National University (ANU) - Crawford School of Public Policy ( email )

Crawford Building
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

University of Oxford - Nissan Institute of Japanese Studies ( email )

27 Winchester Road
Oxford OX2 6NA
United Kingdom
01865 274575 (Phone)
01865 274574 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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