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N° 2009-01 |
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| January 2009 |
From Various Degrees of Trade to Various Degrees of Financial Integration:
What do Interest Rates Have to Say? |
Adeline Bachellerie
Jérôme Héricourt
Valérie Mignon |
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| This paper proposes a systematic study of the degree of financial integration following the degree of trade
integration according to Balassa’s (1961) classification, from preferential trading area to complete economic
integration. To this end, we exploit all the information contained in interest rates and rely on the
expectations hypothesis of the term structure of interest rates and real interest rate parity. These two conditions
are empirically investigated on various regional trade agreements, using cointegration techniques
by paying a special attention to potential breaks. Our results show that customs unions, corresponding
to step 3 of the Balassa’s classification, seem to be a decisive threshold after which financial integration
robustly takes place. |
Non-technical summary  |
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Résumé
non-technique
en français |
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| Full text |
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| Financial integration; trade integration; regional trade agreement; term structure of
interest rates; real interest rate parity |
Keywords |
| C22; E43; F15 |
JEL classification |
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