Working Paper: CEPR ID: DP1028
Authors: Tamim A. Bayoumi; Ronald McDonald
Abstract: This paper uses consumption patterns across countries to measure capital market integration. It argues that earlier empirical tests of this type were potentially mis-specified and proposes a more robust specification. The results indicate that Japan was the only industrialized country for which national consumption was fully integrated with the rest of the world over the period 197389. For the other countries the source of the failure varies. Within the European Union it is generally associated with incomplete integration across capital markets. Elsewhere, consumption is found to be excessively dependent on disposable income.
Keywords: consumption; international capital markets
JEL Codes: E21; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Japan's capital market integration (F30) | Japan's consumption patterns (D12) |
| Incomplete national capital market integration within the EC (F36) | Consumption excessively dependent on local disposable income (D12) |
| Greater integration of national capital markets (F36) | Improvement in consumption patterns (D12) |