Financial Market Linkages in South Asia: Evidence Using a Multivariate GARCH Model

The economic and social benefits of more openness and internationalisation are well supported by both academics and policy-makers. Many countries are also trying to become part of the world trade bloc such as the World Trade Organisation (WTO) or AFTA. Efforts are also made to strengthen the existing regional economic and trade coordination or establish new regional economic and financial integration. Unfortunately, at the time (during the 1980s and 1990s) when many emerging economies in East Asia were involved in openness, internationalisation and regional economic and financial integration, the South Asian countries wasted their resources in dealing with political crisis (such as Bangladesh), internal conflicts (such as Sri Lanka) or border issues (such as India and Pakistan). It is only recently that regimes have realised that a peaceful economic environment is essential to attract foreign investment, pursue a pro-growth policy and achieve a sustainable growth. The recent dialogue between Pakistan and India and some progress in SAARC consultation are a few steps towards these goals.