This dissertation seeks to understand the pattern of trade and portfolio investment in East Asian economies and how trade integration can affect the level of bilateral asset holdings. On the trade side, the determinants of bilateral trade flow is examined at the product level, not the aggregate, so as to assess the impact of RTAs across product types as well as the nature of the home market effect and the role of similarity of demand structures. On the financial side, the dissertation synthesizes analyses of the composition of cross-border portfolio holdings in East Asian economies, focusing on the importance of capital market development as well as a linkage between goods and financial markets.;The dissertation begins with a re-examination of the determinants of bilateral trade in differentiated, reference-priced, and homogeneous products over the period of 1983-2000. The results suggest that trade liberalization under the ASEAN PTA and AFTA frameworks played a significant role in promoting intra-regional trade in differentiated and reference-priced, but perhaps not homogeneous products. The weak evidence of trade creation in homogeneous products reflects the fact that the implementation of trade liberalization among ASEAN states has provided limited benefits to its members due to waivers of concessions. Despite the massive increase in intra-ASEAN trade, nevertheless, the findings reveal that the formation of RTAs in the region did not lead to trade diversion in any product category.;The analysis of the composition of cross-border portfolio holdings in East Asian financial markets employs a panel dataset of the IMF's CPIS over the period of 2001-2009. One key finding from the analysis is that the volume of bilateral imports appeared to play a significant role in spurring cross-border portfolio holdings in East Asian financial markets. In particular, the dissertation shows empirically that the development of the capital markets in East Asia has become one of the key factors in attracting foreign portfolio investment from most regions of the world.
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