Capital Market Integration: Progress Ahead of the East African Community Monetary Union
31 Pages Posted: 2 Feb 2012
Date Written: January 2012
Abstract
Capital markets in the East African Community (EAC) face common challenges of low capitalization and liquidity, but to different degrees. EAC member countries have made noticeable progress in developing domestic capital markets through a regional approach, removing constraints on capital transactions and harmonizing market infrastructure. Nevertheless, empirical analysis suggests capital market integration has not deepened during the past few years in the EAC, although convergence of investment returns is taking place to some extent. Learning from the experience of the West African Economic and Monetary Union and the Association of Southeast Asian Nations, EAC countries would benefit from four actions to accelerate financial market integration: (i) further harmonize market infrastructure; (ii) strengthen regional surveillance mechanisms; (iii) encourage local currency bond issuance by multilateral financial institutions; and (iv) build the capacity of the existing regional institutions.
Keywords: East African Community, Regional Integration, Monetary Union, Capital Market, Equity, Stock, Bond, Beta Convergence, Sigma Convergence, Cointegration, Capital Account Liberalization, Stock Markets, Market Structure And Pricing
JEL Classification: F36, G12, G15, G18, N27
Suggested Citation: Suggested Citation