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Challenges and Opportunities for Trade and Financial Integration in Asia and the Pacific

image of Challenges and Opportunities for Trade and Financial Integration in Asia and the Pacific
This book brings together chapters that explore various aspects of trade and financial integration in Asia and the Pacific, the reasons for the lack of it, and potential benefits of strengthening such integration. The book focuses on the exploration of challenges and opportunities that exist in intraregional trade in goods, integration in services trade, availability of trade finance as well as inflows of portfolio investments. The papers have been written by researchers who have applied their extensive expertise and analytical skills to studying the impacts of regional trade liberalization and motivation for financial flows.

English

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Geographical trade structure and patterns of international portfolio investment – the case of Australia

This paper analyses the geography of Australia’s international portfolio investment using the International Monetary Fund’s coordinated Portfolio Investment Survey dataset. It provides some answers to the following questions: (a) why does the pattern of Australia’s capital flows not match that of its trade flows; (b) which bilateral factors are responsible for explaining Australia’s portfolio equity investment holdings; and (c) are cultural, informational factors important in explaining Australia’s portfolio allocations; and (d) how regulatory and legal variables affect equity portfolio holdings’ Preliminary results suggest that Australia’s external holdings of equity and debt as a percentage of national income almost doubled between 1997 and 2001. However Australia’s international investment position as a percentage of national income is one of the lowest among the major OECD countries. In 2001, approximately two thirds of Australia’s total investments were invested in the United States of America and the United Kingdom of Great Britain and Northern Ireland. In contrast, Australia’s trade share (exports plus imports as a percentage of Australia’s total world trade) with these countries was approximately 20 per cent in 2001. The major determinants of Australia’s geographical allocation of portfolio investment indicate a broad correspondence between stock market capitalization of destination countries and the allocation of Australian financial investments – although with some deviations from that baseline, where the deviations are correlated with Australian trade patterns. Australia’s disproportionate investment in a few countries can be attributable to an extension of the home bias puzzle that has been observed by many researchers.

English

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