DP1028 Consumption, Income, and International Capital Market Integration

Author(s): Tamim Bayoumi
Publication Date: October 1994
Keyword(s): Consumption, International Capital Markets
JEL(s): E21, F36
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1028

This paper uses consumption patterns across countries to measure capital market integration. It argues that earlier empirical tests of this type were potentially mis-specified and proposes a more robust specification. The results indicate that Japan was the only industrialized country for which national consumption was fully integrated with the rest of the world over the period 197389. For the other countries the source of the failure varies. Within the European Union it is generally associated with incomplete integration across capital markets. Elsewhere, consumption is found to be excessively dependent on disposable income.