The Integration of Financial Markets: Empirical Evidence from South Asian Countries

The study analyzed financial market integration in the five countries of South Asia, Pakistan, India, Bangladesh, Sri Lanka and Nepal. All the variables are found to be integrated of the same order in the case of Pakistan, India and Nepal. But for Bangladesh and Sri Lanka they are of different order. The study used Engle Granger (1987) two step methods to check the long run relationship in the case of three countries. There is no evidence of long run relationship between domestic savings and investments to GDP ratio. Further it is found that Indian financial market is not integrated with the world, while financial markets of other South Asian countries are integrated with the world. However, degree of integration is different for each country.