Essays on international financial integration

International financial integration has become a global tendency through the past decades, allowing for capital mobility across country's borders to rise to an unprecedented scale. Theoretically, financial openness is believed to enhance economic growth through facilitating capital allocation between economies. Over the years, however, financial openness also seems to associate with the amplification of global financial cycle. Against such backdrop, there is constant debate between financial regulation and liberalization among economists and policy makers. This thesis contains three essays revolves around topic of international financial integration which aim to provide new insight to the ongoing debate from different perspectives. Chapter 1 proposes a multi-market model with heterogeneous agents investing in stock markets and foreign exchange market. Using monthly US and Japanese stock data and exchange rate of Yen/USD from May 1993 to September 2017, we estimate the vector autoregression model with threshold and Markov switching mechanisms. The regression results show that behavioral heterogeneity exists in multiple markets and cross-market sources link different markets together endogenously. The behavioral heterogeneity and interaction among markets are found state-dependent, and empirical evidences support they are more significant during low volatility periods. Chapter 2 analyzes the role of different types of capital flows on foreign exchange instability of 21 emerging market economies (EMEs) between 1995Q1 and 2015Q2. This study consists of two steps. First, we identify turbulence episodes of exchange market pressure (EMP) index for each sample country under framework of extreme value theory. Second, a comparative analysis between the extreme positive and negative EMP episodes is carried out by using panel multinomial logistic regression. Our findings show that (1) there is asymmetry in the EMP distributions, where the occurrence of extreme positive episodes is more frequent than the extreme negative episodes in most EMEs, (2) portfolio and credit flows are significant determinants to both extreme events, and (3) by distinguishing the residency of capital flows, foreign short-term capital inflow is the key factor that attributes to the currency crises in the EMEs. Chapter 3 examines the nonlinear relationship between international financial integration (IFI) and income inequality. Our sample covers 43 industrial and developing economies, spanning 1980-2014 period. Using dynamic panel threshold regression technique, we find an inverted U-shaped IFI-inequality nexus robust to four de facto IFI indicators and several sensitivity checks.Doctor of Philosoph

The linkage between international financial integration and income inequality

Following the trend of financial globalization since the 1980s, more and more tropical economies have embraced financial openness as one of the drivers of economic growth, allowing foreign investments to pour into their countries. While FDI capital flows are often associated with higher economic growth, fickle non-FDI flows are blamed for exposing developing economies to the risk of ‘Sudden Stop’ and economic instability. Financial openness associated with different types of foreign investment is likely to make differential impacts across different income groups within an economy, which has implications for a nation’s income inequality. Since most of the tropical economies are in a relatively early phase of financial openness compared to their developed counterparts, it would be meaningful to investigate the relationship between financial openness and income inequality, allowing for possible nonlinear linkage dependent on stages of financial openness

2013 Malaysian election : an empirical study on strategic allocation model

Numerous studies have been conducted to examine the impact of strategic decisions on the election outcome in the United States presidential election. Conversely, such empirical research and analysis in Malaysia have yet to be done. In this paper, we will be using a game theoretical approach to analyze the 2013 Malaysian Election, seeking to investigate whether parties engage in strategic allocation of resources over electorates. In this closest race ever in Malaysia’s election history, the opposition won 51% of popular votes but lost in the election with only 89 out of 222 parliamentary seats obtained. As such, the first model of this paper aims to identify the rationality attributes to such interesting outcome. The empirical results suggest that the election is a strategic allocation game, where resource distribution plays a pivotal role in affecting parties’ winning chances. The second model describes the factors affecting parties’ strategic decisions. It is observed that both coalition parties used different approaches in allocating their strategy. From our findings, we infer that the loss of opposition was largely the result of strategic mistakes. Hence, further investigation is made to identify the ex post mistakes done by the opposition. Alternative strategies which could possibly overturn the election outcome are then explored.Bachelor of Art

The Impact of Trade Conflict on Economic Development in Asia

The US–China trade war has had a significant impact on not only the countries directly involved but also their trading partners. The conflict has therefore had a range of economic and geopolitical impacts that directly affect the Asian region. In order to better understand this impact, our study examines the nature of the US–China relationship and how it has evolved in recent decades. The study also highlights the fact that in addition to these developments has been the shift away from traditional globalist orthodoxies that formed the basis of economic development in the post-World War II era, to an increasingly protectionist, nationalistic view of trade. As the global economies emerge from the shadows of the still ongoing COVID-19 pandemic, the ability to respond positively to these challenges and also fend off demands for a more protectionist trade policy narrative will be critical. As such, our study also outlines not only the economic development impact of the US–China trade war on Asian economies but also the types of policies that could be implemented to drive a positive growth agenda moving forward

Economic Growth and Development in the Tropics

The living standards and scale of development around the world are vastly unequal. One notable observation is that much of the poverty-stricken area is located between the tropics of Cancer and Capricorn. By contrast, affluent nations are situated in more temperate zones. Such a phenomenon gives weight to the geography hypothesis that seeks to explain the occurrence of global economic inequality, by placing an emphasis on the importance of natural elements such as location and climate in determining the economic conditions of a nation. This book concentrates exclusively and in depth on the key economic phenomena and factors which shape tropical economies today. It examines contemporary economic problems confronting the tropical countries and provides policy recommendations that align with the United Nations’ Sustainable Development Goals set in the 2030 Agenda. It contains research works and case studies of tropical economies that are related to the area of development and environment economics. The book’s themes range from economic growth, poverty reduction, income inequality, economic globalization, international trade, capital flow, financial development, and institutional development to environmental sustainability within the Tropics. Recognizing the dynamism and diversity of the tropics, the book encompasses empirical and policy analyses that address the key economic issues and challenges in the region so as to provide an important platform from which new policymaking initiatives can flourish. This book will draw readership primarily from the fields of economics and public policy, particularly under the subject areas of development and environment economics, as well as discussions in the sustainability policy space

Trade and Development in Asia

In recent decades, the Asian region has enjoyed the benefits of an increasingly neo-liberalist trade policy agenda. However, as more protectionist trade policies gain momentum and a global pandemic still having an impact on the region, many ponder what the future might look like. Will international trade continue to be a key driving force for progress and economic development? To address this question, our research examines the current economic, trade, and geopolitical factors of Asia to ascertain whether the current policy settings are right and potentially what countries can do to harness the enormous potential that lies within the region. Our analysis shows that while COVID-19 and the ongoing war in the Ukraine have undoubtedly had an impact, the reliance of local communities and the desire by Governments to try and retain, where possible, an open and forward-thinking view towards international trade and development means that an optimistic view of future remains. However, such optimism has been tempered by inflationary concerns and the uncertainty that still exists around how far and how fast interest rates will rise in the United States (US), the flow on effects of which will have a bearing on the economic performance of Asia

Exposure to Dollar, financial Openness, and the heterogeneous impact of US monetary spillover

This paper studies how country heterogeneities, especially in their (1) net exposure to dollar debt and (2) financial openness affect the propagation of US monetary shocks into peripheral advanced and emerging economies. We contribute to the understanding of how interest rate and GDP responses of emerging countries depend on both their dollar liability and financial openness, as well as the interaction between these two factors. Specifically, we find that economies with higher debt dollarization have higher interest rate responses to contractionary US monetary shocks to prevent negative balance sheet effects. We also find that GDP decreases by more for economies with high debt dollarization if their financial openness is high. Using capital control as the de jure measure of financial openness, we obtain similar results that GDP decreases by more for countries net short of dollar if capital control is low, and at the same time, GDP is higher for countries with higher capital control if they are more indebted in dollar. Combined, these imply that capital control helps dampen negative US monetary spillover, and the benefit from imposing capital control is larger for countries that are more indebted in dollar

Behavioral Heterogeneity in the Japanese and US Stock Markets

Using monthly stock prices and exchange rate of Japan and the US from June 1980 to December 2019, we identify episodes of boom/bubble and bust/crash in these stock markets by comparing their market prices with their respective fundamental values. We then examine the price dynamic of the two stock markets and foreign exchange market using a three-market heterogeneous agent model with fundamentalists and chartists. Our results suggest that the degree of behavioral heterogeneity is greater in the boom/bubble regime than that of the bust/crash regime. We also confirm that behavioral heterogeneity and cross market trades prevail only during boom/bubble period which is consistent with existing literature of 1986–1991 Japanese asset price bubble

A time-varying copula approach for constructing a daily financial systemic stress index

This paper develops a financial systemic stress index (FSSI) for the US financial market. We propose a time-varying copula method to model the dependence structure among financial sectors in order to build a correlated financial stress model that can signal systemic financial risks. The copula method is preferable to the traditional approach, enabling the modeling of non-linear correlations. Our analyses show that the dependencies across banking, security, and forex markets are best modeled by Archimedian copulas. Finally, we conduct a Markov Switching Autoregressive (MS-AR) model for FSSI and identify high financial stress episodes taking place in 2008–2009, 2011 and 2020

Financial Stress of Singapore in the Time of COVID-19

This study extends the existing literature on the use of financial stress index (FSI) to assess the financial condition of Singapore during the COVID-19 crisis. Specifically, a high-frequency FSI is constructed to provide timely analysis which is imperative given the pandemic is still lingering across the globe. There are two main uses of the FSI. First, we use FSI to detect episodes of financial stress and investigate whether Singapore’s financial system is facing frailty during the pandemic. Second, we use a vector autoregression (VAR) model to analyse the comovement between FSI, COVID-19 indicators, and global financial factors, which shed light on the main drivers underlying Singapore’s financial stress since the COVID-19 outbreak. Our findings suggest that (1) excessive stresses were detected during 9 March–21 April 2020, a period that corresponded to the evolution of COVID-19 into a global pandemic as well as the beginning of Singapore’s Circuit Breaker period; and (2) the dynamics of Singapore’s FSI is more due to the global financial factors than it is to the severity of the domestic COVID-19 condition