Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang
Chapter 4: Why has there been Less Regional Integration in East Asia than in Europe?
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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