Banking Integration in Open, Small Economies of the Pacific Island Countries

Abstract This is the first study to systematically investigate the extent of financial integration in the small, open Pacific Island Countries (PICs). The study applies Autoregressive Distributed Lag co-integration technique on interest rate spreads and covers Fiji, Papua New Guinea, Vanuatu and Tonga, while controlling for the effects from Australia and the United States for the period 1992 to 2019. In the short run, there is some evidence of regional as well as global integration. In the long run, both regional and global integrations become more pronounced. Explanations, consequences and policy implications are discussed.