Research On Financial Integration And Risk Sharing Of East Asia

On August1967, the representatives of Philippines, Malaysia, Thailand, andSingapore issued “The Bangkok Declaration”, indicating the establishment of theAssociation of Southeast Asian Nations. This is the prototype of the integration of EastAsia. The ASEAN member states was in a sharp increase after decades. Asian FinancialCrisis made Asian countries realize drawbacks of global financial integration, so theyturned to seek for regional cooperation, aimed at getting rid of crisis and keepingeconomic stability.The key benefit of regional financial integration is to smooth the fluctuation ofoutcome.When the outcome of a country encounters with shocks, it can get the capital inAsian region to reduce the effect of these shocks. However as the deepening of financialintegration in East Asia, the degree of risk sharing isn’t high. This article is dedicated tostudy why financial integration in East Asia doesn’t promote the degree of risk sharing inthe region. On the basis of previous study on financial integration and risk sharing in EastAsia, this article divides channels of risk sharing into net international factor income,capital depreciation, regional transfer and savings, analyzes the impact path of risksharing, and puts forward proposal about the deepening of financial integration in EastAsia.Adopting data from Penn Word Table7.0from1970to2010,this paper calculates thegrowth rate of per capita outcome, the growth rate of per captia consumption, GDP, GNP,NI, DNI,C+G of each Asian county, and the growth rate of total outcome andconsumption of East Asia. By the correlation coefficients of growth rate of per capitaconsumption between two counties, the financial integration in East Asia becomes deeperand deeper; but by making regression analysis to the growth rate of consumption and thegrowth rate of outcome, the degree of risk sharing is too low. In order to study the causeof low risk sharing, this paper measures the degree of risk sharing through netinternational factor income, capital depreciation, regional transfer and savings, findingthat net international factor income, capital depreciation, regional transfer can’t smoothenough outcome fluctuation. The key reasons are undeveloped Asian financial market, preference for European and American markets, and imperfect enforcement mechanisms.The financial cooperation of East Asia should be closer and closer in the future. Asthe same time, each country must pay more attention to improve financial markets,reduce the dependence on European and American market, and ensure theimplementation of financial cooperation policies.