The International Financial Integration of China and India

58 Pages Posted: 22 Aug 2006

See all articles by Philip R. Lane

Philip R. Lane

Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR); Central Bank of Ireland

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2006

Abstract

Three main features characterize the international financial integration of China and India. First, while only having a small global share of privately-held external assets and liabilities (with the exception of China's FDI liabilities), these countries are large holders of official reserves. Second, their international balance sheets are highly asymmetric: both are short equity, long debt. Third, China and India have improved their net external positions over the last decade although, based on their income level, neoclassical models would predict them to be net borrowers. Domestic financial developments and policies seem essential in understanding these patterns of integration. These include financial liberalization and exchange rate policies; domestic financial sector policies; and the impact of financial reform on savings and investment rates. Changes in these factors will affect the international financial integration of China and India (through shifts in capital flows and asset/liability holdings) and, consequently, the international financial system.

Keywords: Financial integration, capital flows, China, India

JEL Classification: F30, F31, F32, F33, F36

Suggested Citation

Lane, Philip R. and Schmukler, Sergio, The International Financial Integration of China and India (August 2006). IIIS Discussion Paper No. 174. Available at SSRN: https://ssrn.com/abstract=925872 or http://dx.doi.org/10.2139/ssrn.925872

Philip R. Lane (Contact Author)

Trinity College (Dublin) - Department of Economics ( email )

Trinity College
Dublin 2
Ireland
+353 1 608 2259 (Phone)
+353 1 677 2503 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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