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A New Financial Market Structure for East Asia

A New Financial Market Structure for East Asia

Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang

This book contends that the East Asian financial constitution lacks an appropriate infrastructure, resulting in inefficient allocation of high savings and an over-inflated short-term debt market. It goes on to point out that despite high savings, East Asia’s dependency on financial centers outside the region is also relatively high, and that there is no strong region-wide network to connect various financial centers in East Asia.

Chapter 4: Why has there been Less Regional Integration in East Asia than in Europe?

Barry Eichengreen and Yung Chul Park

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation


4. Why has there been less financial integration in Asia than in Europe? Barry Eichengreen and Yung Chul Park 1. INTRODUCTION One of the most striking aspects of Europe’s recent development has been the growth and integration of financial markets. Bond markets have grown explosively since the advent of the euro. Cross-border transactions in government bonds have risen sharply with the emergence of the German bund as a benchmark asset, while the volume of corporate bond issues has grown even more dramatically.1 Securities markets are consolidating around London and Frankfurt, which are competing for the mantle of Europe’s dominant financial center. This rapid market integration has raised questions about the viability of Europe’s traditional model of bank-based financial intermediation, causing commercial and investment banks to respond with a wave of mergers and acquisitions.2 In Asia, in contrast, there has been less progress in financial integration. Cross-border bank credit flows remain becalmed at low levels. There is no sign of the development of an integrated market in government and corporate bonds. Equity markets have not yet begun to consolidate. If anything, the countries of East Asia have developed stronger financial ties with Western Europe and the United States than with one another. This conclusion obtains whether one analyses the distribution of lead manager by nationality, the source of cross-border bank credit flows, or any of a number of other indicators of financial integration (Park and Bae 2002). These contrasts are perhaps not surprising, given that the broader process of integration is...

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