An assessment of the capital account liberalization in the Philippines for the ASEAN financial integration
Date
2015-05
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Abstract
The recent collaboration of the Philippines with the other Southeast Asian nations and the hope to improve the current policies reg~rding the financial market of the country motivated the researchers to conduct the study. This research focused on the Capital Asset Liberalization in the Philippines in line for the ASEAN Financial Integration. It assessed the fmancial market's components and its contribution to the growth of the national economy for 2005 to 2014, through a Vector Error Correction (VEC) model. Capital Account (CA), Financial Account (FA), and Total Approved Foreign Investments (TAFI) served as financial market components while the ratio of Money Supply (M3) to Gross Domestic Product (GDP) served as a proxy measuring Financial Deepening. Appropriate policy shocks were also included in the model: six waves of Central Bank of the Philippines' CAL initiatives and a law allowing infusion of foreign equity to rural banks. It also utilized Impulse Response Functions and Forecast Error Variance Decomposition to reflect the response of and the variance contributed by each variable to each of the other variables. The findings in this study showed that only the sixth wave significantly contributed to Financial Deepening, the fourth and sixth wave significantly contributed to the CA, and the seventh wave significantly contributed to the FA. Therefore, the researchers recommend that the increase in investments be channelled to long term productive uses like for infrastructure, agricultural technology, education and other priority sectors stipulated in the roadmaps for Vision 2020.
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Keywords
Liberalization, ASEAN