Home Business & Economics Banking Integration in Open, Small Economies of the Pacific Island Countries
Article
Licensed
Unlicensed Requires Authentication

Banking Integration in Open, Small Economies of the Pacific Island Countries

  • Nirodha Jayawardena EMAIL logo , Kalolaini Ranadi , Parmendra Sharma and Seruwaia Cagilaba
Published/Copyright: August 11, 2022

Abstract

This is the first study to systematically investigate the extent of financial integration in the small, open Pacific Island Countries (PICs). The study applies Autoregressive Distributed Lag co-integration technique on interest rate spreads and covers Fiji, Papua New Guinea, Vanuatu and Tonga, while controlling for the effects from Australia and the United States for the period 1992 to 2019. In the short run, there is some evidence of regional as well as global integration. In the long run, both regional and global integrations become more pronounced. Explanations, consequences and policy implications are discussed.


Corresponding author: Nirodha Jayawardena, Department of Accounting, Finance and Economics, Griffith University, 170 Kessels Road, Brisbane, QLD 4111, Australia, E-mail:

References

Afanasieff, T. S., P. M. Lhacer, and M. I. Nakane. 2002. “The Determinants of Bank Interest Spread in Brazil.” Money Affairs 15 (2): 183–207.Search in Google Scholar

Affinito, M., and F. Farabullini. 2009. “Does the Law of One Price Hold in Euro-Area Retail Banking? An Empirical Analysis of Interest Rate Differentials across the Monetary Union.” International Journal of Central Banking 5 (1): 1–33.Search in Google Scholar

Albulescu, C. 2011. “Economic and Financial Integration of CEECs: The Impact of Financial Instability.” Czech Economic Review 5 (1): 27–45.Search in Google Scholar

Ananchotikul, N., S. Piao, and M. E. Zoli. 2015. “Drivers of Financial Integration–Implications for Asia.” International Monetary Fund.10.5089/9781513554815.001Search in Google Scholar

Aviat, A., and C. Nicolas. 2007. “The Geography of Trade in Goods and Asset Holdings.” Journal of International Economics 71: 22–51. https://doi.org/10.1016/j.jinteco.2006.02.002.Search in Google Scholar

Brown, R. L., J. Durbin, and J. M. Evans. 1975. “Techniques for Testing the Constancy of Regression Relations over Time.” Journal of the Royal Statistical Society 37: 149–63. https://doi.org/10.1111/j.2517-6161.1975.tb01532.x.Search in Google Scholar

Engle, R. F., and C. W. Granger. 1987. “Co-Integration and Error Correction: Representation Estimation, and Testing.” Econometrica, 55 (2): 251–76.10.2307/1913236Search in Google Scholar

Eyraud, L., D. Singh, and B. Sutton. 2017. “Benefits of Global and Regional Financial Integration In Latin America.” In IMF Working Paper, 1–32.10.5089/9781475568684.001Search in Google Scholar

Garali, W., and S. Othmani. 2015. “The Determinants of International Financial Integration in the MENA Area.” Procedia Economics and Finance 26: 535–41.10.1016/S2212-5671(15)00951-XSearch in Google Scholar

Garcia-Herrero, A., and P. D. Wooldridge. 2007. “Global and Regional Financial Integration: Progress in Emerging Markets.” BIS Quarterly Review.Search in Google Scholar

Gidigbi, M. O., and B. Akanegbu. 2017. “Does Financial Integration Exist in ECOWAS?” Journal of Social and Development Sciences 8 (2): 14–27.10.22610/jsds.v8i2.1793Search in Google Scholar

Granger, C. 1981. “Some Properties of Time Series Data and Their Use in Econometric Model Specification.” Journal of Econometrics 16 (1): 121–30. https://doi.org/10.1016/0304-4076(81)90079-8.Search in Google Scholar

Johansen, S., and K. Juselius. 1990. “Maximum Likelihood Estimation and Inference on Cointegration with Applications to Demand For Money.” Oxford Bulletin of Economics and Statistics 52 (2): 162–210.10.1111/j.1468-0084.1990.mp52002003.xSearch in Google Scholar

Kleimeier, S., and H. Sander. 2000. “Regionalisation versus Globalisation in European Financial Market Integration: Evidence from Cointegration Analyses.” Journal of Banking & Finance 24 (6): 1005–43. https://doi.org/10.1016/s0378-4266(99)00116-8.Search in Google Scholar

Kleimeier, S., and H. Sander. 2007. “Integrating Europe’s Retail Banking Markets: Where do We Stand? A Survey of the Academic Evidence.” CEPS Reports in Finance and Banking 38.Search in Google Scholar

Kwon, G., and R. Espinoza. 2009. “Regional Financial Integration in the Caribbean- Evidence from Financial and Macroeconomi Data.” In IMF Working Paper Volume WP/01/139, 1–36.10.5089/9781451872866.001Search in Google Scholar

Lane, P. R., and M. M. Ferretti. 2005. Financial Globalisation and Exchange Rates. In IMF Working Paper WP/05/3, 1–46.10.5089/9781451860221.001Search in Google Scholar

Lean, H. H., and S. F. Hamid. 2016. “Is ASEAN Ready For Banking Integration? Evidence From Interest Rate Convergence.” The Indonesian Capital Market Review 8 (2): 2.10.21002/icmr.v8i2.5712Search in Google Scholar

Muntean, R. 2014. “Assessing integration of EU banking sectors using lending margins.” Theoretical and Applied Economics 21 (8).Search in Google Scholar

Ouattara, B. 2004. Foreign Aid and Fiscal Policy in Senegal, 262–7. Manchester: Mimeo University of Manchester.Search in Google Scholar

Park, K. H. 2005. “A Test of Financial Integration In East Asia.” Multinational Business Review, 13(1): 1–21.10.1108/1525383X200500004Search in Google Scholar

Pesaran, H. M., and B. Pesaran. 1997. Microfit 4.0. Oxford University Press.Search in Google Scholar

Pesaran, M., and Y. Shin. 1999. An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Faculty of Economics, University of Cambridge: Cambridge Working Papers in Economics.10.1017/CCOL521633230.011Search in Google Scholar

Pesaran, M. H., Y. Shin, and R. J. Smith. 2001. “Bounds Testing Approaches to the Analysis of Level Relationships.” Journal of Applied Econometrics 16: 289–326 https://doi.org/10.1002/jae.616 .Search in Google Scholar

Ryan, C., and N. Horsewood. 2009. “The Role of Banks in Financial Integration: Evidence from New EU Members.” International Economics and Economic Policy 6 (3): 235–58.10.1007/s10368-009-0129-0Search in Google Scholar

Saab, S. Y., and J. Vacher. 2007. “Banking Sector Integration and Competition in CEMAC.” International Monetary Fund No. 2007/003.10.5089/9781451865677.001Search in Google Scholar

Sheridan, N., P. Tumbarello, and Y. Wu. 2012. “Global and Regional Spillovers to Pacific Island Countries.” In IMF Working Paper WP/12/154, 1–41.10.5089/9781475504491.001Search in Google Scholar

Shirani Fakhr, Z., and S. K. Tayebi. 2009. “Determinants of Financial Integration in the East Asia-Pacific Region.” Iranian Economic Review 14 (23): 155–73.Search in Google Scholar

Singh, V. K., and F. Ahmed. 2016. “Econometric Analysis of Financial Cointegration of Least Developed Countries (LDCs) of Asia and the Pacific.” China Finance Review International 6 (2): 208–27 https://doi.org/10.1108/cfri-06-2015-0056 .Search in Google Scholar

Taghizadeh-Hesar, F., N. Thi Minh Phi, H. Hoang Thi Hong, and V. T. Chu. 2019. “Does Financial Integration Matter for Financial Development? Evidence from the East Asian and Pacific Region.” Journal of Economic Integration 34 (4): 591–618 https://doi.org/10.11130/jei.2019.34.4.591 .Search in Google Scholar

Schüler, M., and F. Heinemann 2003. “How Integrated are the European Retail Financial Markets? A Cointegration Analysis.” In The Incomplete European Market for Financial Services, 129–54. Heidelberg: Physica.10.1007/978-3-642-57364-4_6Search in Google Scholar

Tayebi, K. S., and S. Z. Fakhr. 2009. “Determinants of Financial Integration in the East Asia-Pacific Region.” Iranian Economic Review 14 (23): 1–19.Search in Google Scholar

Received: 2021-01-26
Revised: 2022-05-03
Accepted: 2022-06-22
Published Online: 2022-08-11

© 2022 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 14.3.2026 from https://www.degruyterbrill.com/document/doi/10.1515/apjri-2021-0004/html
Scroll to top button