Financial Market Integration: Empirical Evidence from the COMESA

Abstract

The purpose of this research paper is to investigate the level of financial market integration in the COMESA (The Common Market for Eastern and Southern Africa) regional market over the period from January 2005 to December 2013 using monthly data. Due to data constraint, we select ten countries from the COMESA regional market that have relatively stable data. We also include two big international markets - China and the U.S. to assess the level of integration of the regional market with two of the key global market leaders. To analyze the long-run relationship among the markets, we use the Level-VAR procedure that was proposed by Toda and Yamamato (1995).

Despite the establishment of NEPAD (The New Partnership for Africa’s Development) to promote free trade zone and regional integration, and the advent of structural adjustments, we find that the level of financial market integration in the COMESA regional market is not significant, and most of the markets are still fragmented. The financial market integration of the regional market (COMESA) with the two big international markets - China and the U.S. is not also significant to realize integration with the global market leaders.