This paper investigates the interrelationships between prices on the mainland Chinese share market and those in the neighbouring markets of Hong Kong and Taiwan. While there is a growing literature on interrelationships between share market including the emerging markets in Asia, very little is known about the role of mainland markets in the region. We consider the interrelationships between the Shanghai and Shenzhen exchanges and those in Hong Kong and Taiwan. We begin by combining the Shanghai and Shenzhen price indexes into a single value-weighted index and investigating its relationship to the indexes for Hong Kong and Taiwan. We find that the mainland markets are relatively isolated from the other two markets considered, although after the Asian crisis there is evidence that Hong Kong has weak predictive power for returns in the mainland. Hong Kong also clearly Granger-causes Taiwan although the reverse is not true. Both Hong Kong and Taiwan have strong contemporaneous relationships, a feature which is more marked after the Asian crisis. We also analysed the two mainland markets separately, both by themselves and with Hong Kong. We found some predictability of the prices in one market on the basis of lagged prices in the other although this was less apparent after the Asian crisis. Both before and after the 1997, there were strong contemporaneous relationships between the two mainland markets, vindicating our earlier decision to treat them as a single market.

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"This article examines how the rule of law and democratic accountability have affected Hong Kong's Gross Domestic Product (GDP) growth rate in the past 20 yr. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from autoregressive distributed lag bounds tests show a positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to control for the effects of investment and the Asian financial crisis in 1997. "("JEL "O18, O49, P17) Copyright 2007 Western Economic Association International.

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