EABER Working Paper Series Paper No. 52
Asia is a region whose financial integration has not kept pace with real integration. Asias relative financial isolation has limited its exposure to the direct fallout of the global financial crisis (though it did not prevent trade links from exerting severe contractionary impact). Does this mean that Asia should continue to limit its financial integration, in order to limit its susceptibility to a large global financial shock? The paper argues that maintaining the status quo is not a sustainable policy option. Promoting financial integration could further strengthen real links within the region and also help limit financial dependence on the center countries of North America and Europe. In the process, Asia will create more demand for final goods from within and outside the region; Asia will intermediate more of its own financial resources for use within the region. In other words, this will help facilitate a transition of the current hub-and-spoke structure of world trade and finance, which has been the source of instability, to a more pluralistic structure. Regional cooperation is essential in the process.