Financial integration and macroeconomic volatility: evidence from Asia

Inder Sekhar Yadav (Department of Humanities and Social Sciences, Indian Institute of Technology Kharagpur, Kharagpur, India)
Phanindra Goyari (School of Economics, University of Hyderabad, Hyderabad, India)
Ram Kumar Mishra (Department of Economics and Finance, Institute of Public Enterprise, Osmania University Campus, Hyderabad, India)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Publication date: 3 June 2019

Abstract

Purpose

The purpose of this paper is to empirically examine the impact of financial integration on macroeconomic volatility for developing and emerging economies of Asia.

Design/methodology/approach

The effects of financial integration and dynamics of macroeconomic volatility over time and across different groups of Asian economies vis-à-vis advanced economies are investigated using four different variables such as consumption, output, income and the ratio of consumption to income. Further, an empirical link between the degree of international financial integration and macroeconomic volatility for Asian economies is econometrically investigated using generalized method of moments (GMM) system one-step estimator.

Findings

Macroeconomic volatilities of per capita output and consumption growth tend to be lower for advanced economies compared to Asian economies. The computed cross-sectional median of the volatility of consumption, output, income and the ratio of consumption volatility to income suggested that the volatility of advanced economies is lower compared to all the regions of Asia. GMM results suggested that the financial openness, trade openness and broad money are negatively and significantly associated with macroeconomic volatility whereas inflation is positively and significantly associated with macroeconomic volatility but the magnitude of trade openness is found to be negligible.

Research limitations/implications

The present study has not included the effects of other country-specific variables (such as fiscal policy volatility) and other external factors to understand macroeconomic volatility.

Practical implications

High integration of economies promote economic growth, reduce macroeconomic volatility and reduce vulnerability to external shocks. This implies that policy makers should thrive to reform and create institutional infrastructure to deepen the integration.

Originality/value

The paper is an important empirical contribution toward examining the effects of financial integration on dynamics of macroeconomic volatility for a large number of Asian developing and emerging economics over time and across different groups using recent data and latest analytical framework and techniques.

Keywords

Citation

Inder Sekhar Yadav, Phanindra Goyari and Ram Kumar Mishra (2019) "Financial integration and macroeconomic volatility: evidence from Asia", Journal of Economic and Administrative Sciences, Vol. 35 No. 2, pp. 94-112

Download as .RIS

DOI

: https://doi.org/10.1108/JEAS-12-2017-0118

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.
To rent this content from Deepdyve, please click the button.