ASEAN bond market integration: What drives cross-border bond investment in ASEAN?

Abstract

Bond market integration in the Association of Southeast Asian Nations (ASEAN) appears to be relatively low or weak especially in terms of intraregional bond investment despite the robust growth in bond market size in recent years and policy initiatives in support of developing bond markets in the region. This paper aims to contribute to the literature on ASEAN financial integration by providing empirical evidence and policy insights on what can help boost intra-ASEAN bond investment. Using panel regression following a gravity model framework and spanning five major ASEAN member countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—over the 2001–2014 period, this study finds that the bond market size of the origin country, having a common language between origin and destination countries, and financial openness in both origin and destination countries are positively significant with respect to intra-ASEAN bond investment. These findings highlight the importance of narrowing information or transaction costs in order to promote freer flow of capital within ASEAN bond markets and thereby attain regional financial integration.