Welfare Implications of International Financial Integration

Publication | November 2008

This paper investigates the impact of technology spillover from foreign direct investment inflows on financial integration. It finds welfare gains can be had through greater financial integration in emerging Asian economies.

Focusing on technology spillover from foreign direct investment (FDI) inflows, this paper investigates the welfare implications of financial integration. Calibrations of a neoclassical growth model with international technology diffusion show that when technology catch-up due to FDI inflows is considered, the welfare gains from financial integration substantially increase, which contrasts with the small gains from additional, capital-accumulation effects of financial integration. The estimates suggest that by further enhancing financial integration, emerging Asian economies, such as the People's Republic of China (PRC) and the largest four Association of Southeast Asian Nations (ASEAN) countries, will experience substantial welfare gains.

Additional Details

Authors
Type
Series
Subjects
  • Finance sector development
  • Regional cooperation and integration

Subscribe to our monthly digest of latest ADB publications.

Follow ADB Publications on social media.