RCEP’s financial integration before and after the global financial crisis: an empirical analysis

We empirically investigate whether the Regional Comprehensive Economic Partnership (RCEP) economies are more financially integrated with global economies, particularly the U.S., or with each other. For this purpose, we utilize the gravity framework and the IMF’s Coordinated Portfolio Investment Survey (CPIS) data on cross-border holdings of portfolio investment (equities and debt securities) for 2001-2019. We find that the intra-regional integration of financial markets among RCEP economies is limited and has not deepened even after the GFC of 2008. Instead their overinvestment in the U.S. equity market has increased since the GFC. In addition, we find that an increase in bilateral trade does not lead to an increase in bilateral equity investment. Instead, an increase in bilateral equity investment brings about an increase in bilateral trade.