Prerequisites for effective international financial integration in Asian economies: A panel threshold approach

Financial integration is expected to provide participating economies and stakeholders with significant opportunities in terms of capital and human resources, risk diversification, technological innovation, and fair economic treatment, ultimately contributing to national prosperity. However, the potential risks associated with integration have raised concerns about the prerequisite preparation for an efficient integration process. This paper focuses on scrutinizing the conditions required to enhance the positive impact of financial integration on economic growth among selected Asian countries (India, Indonesia, Malaysia, Japan, the Philippines, Singapore, Thailand, China, and Vietnam) during the 1996 to 2019 period. Using a panel threshold approach with parametric ordinary least squares regression and bootstrap replications, the study finds a non-linear impact of financial integration on the economic development of the examined countries, suggesting that different stages of financial integration contribute differently to economic growth. Our empirical results confirm the existence of two financial integration thresholds that maximize the benefits of the integration process. Furthermore, the findings highlight the importance of prerequisite conditions such as financial depth and trade openness for effective and positive financial liberalization in the studied countries. This suggests that countries should strengthen their internal financial systems before engaging in international integration to derive the maximum benefits from this process.