How economic and financial integration affects financial stability in South Asia: Evidence from panel cointegration analysis
How economic and financial integration affects financial stability in South Asia: Evidence from panel cointegration analysis

Summary/Abstract: Using the aggregate financial stability index (AFSI) which measures the gradual progression and changes in financial market stability, this paper conducts an empirical evaluation of the impact of financial and economic integration on the financial stability for South Asia. All selected variables (AFSI, economic integration, financial integration, economic growth, government consumption expenditure) are found to be integrated of order one, cross-sectionally dependent and cointegrated in South Asian panel. Long-run results estimated by applying fully modified OLS (FMOLS) and pooled mean group (PMG) estimator techniques suggest that financial integration and economic integration are not helpful in increasing the financial stability of South Asian financial markets. The findings of the study offers new implications for monetary authorities and policy makers in developing countries.

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