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Legal harmonization, institutional quality, and countries’ external positions: A sectoral analysis

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  • Bremus, Franziska
  • Kliatskova, Tatsiana

Abstract

Motivated by the action plan for a European capital markets union (CMU), this paper analyzes the potential for legal harmonization and convergence in institutional quality to affect capital market integration. Based on hand-collected data on the implementation of EU-directives, our analysis yields three key insights. First, legal harmonization promotes portfolio equity holdings. Second, discrepancies in institutional quality matter primarily for cross-border debt positions. Third, the relationship between external investments and harmonization varies significantly across sectors: the non-bank financial corporations, which account for a large share of portfolio positions, react more to institutional harmonization than do banks and the non-financial private sector.

Suggested Citation

  • Bremus, Franziska & Kliatskova, Tatsiana, 2020. "Legal harmonization, institutional quality, and countries’ external positions: A sectoral analysis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 107.
    • Handle: RePEc:zbw:espost:222453
    DOI: 10.1016/j.jimonfin.2020.102217
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    More about this item

    Keywords

    Capital market integration; Legal harmonization; Sectoral effects;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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