The determinants of financial integration

• Main Author: Nik Nurnina Hidayah, Nik Man
• Format: Thesis
• Language: English; English
• Published: 2017
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/7222/1/s821956_01.pdf; https://etd.uum.edu.my/7222/2/s821956_02.pdf; https://etd.uum.edu.my/7222/

Financial integration is a condition of which the financial markets are closely linked together. The financial integration imposed in the financial systems is conducted through various channels which includes financial liberalization, financial openness, capital account liberalization and external debt. The financial liberalisation theory that is developed by McKinnon (1973) argues for the importance of financial liberalisation for the country’s development. By enhancing the breadth and depth of financial markets, reducing information and transaction costs, financial integration would bring positive impacts to the economy as a whole. The objective of this study is to examine the impact of determinants (trade openness, gross domestic product, exchange rate, tax revenue and financial crisis) on financial integration in seven major economies in ASEAN countries. This study employs the unbalanced data for seven selected ASEAN countries which are Cambodia, Indonesia, Laos, Malaysia, Philippines, Thailand and Vietnam between the periods of 2000 to 2016. The dependent variables for this study is financial integration which is represented by external debt The study focuses on five independent variables which are trade openness, economic growth, exchange rate, tax revenue and financial crisis. The study discovers the positive relationship between economic growth and financial integration for seven ASEAN countries. In addition, the study also finds the positive link between tax revenue and financial integration. In contrary, the trade openness is found to have a negative relationship with the financial integration. Moreover, financial crisis also has a negative and significant relationship with financial integration. This study finds that the financial integration reduces during the post crisis period. Other than that, official exchange rate shows the positive but insignificant relationship with financial integration. For the policy makers, the findings could assist in the future policy making efforts.