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Gains from financial integration in the European union: evidence for new and old members

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  • Yuliya Demyanyk
  • Vadym Volosovych

Abstract

We estimate potential welfare gains from financial integration and corresponding better insurance against country-specific shocks to output (risk sharing) for the twenty-five European Union countries. Using theoretical utility-based measures we express the gains from risk sharing as the utility equivalent of a permanent increase in consumption. We report positive potential welfare gains for all the EU countries if they move toward full risk sharing. Ten country-members who joined the Union in 2004 have more volatile or counter-cyclical consumption and output and would obtain much higher potential gains than the longer-standing fifteen members.

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Paper provided by Federal Reserve Bank of St. Louis in its series Supervisory Policy Analysis Working Papers with number 2007-01.

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Date of creation: 2007
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Handle: RePEc:fip:fedlsp:2007-01

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Keywords: International finance ; European Union countries;

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Cited by:
  1. repec:pra:mprapa:39629 is not listed on IDEAS
  2. Simplice A. Asongu, 2012. "The 2011 Japanese earthquake, tsunami and nuclear crisis: Evidence of contagion from international financial markets," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(4), pages 340-353, December.
  3. Faruk Balli & Syed Abul Basherz & Rosmy Jean Louis, 2012. "Risk Sharing in the Middle East and North Africa: The Role of Remittances and Factor Incomes," CAMA Working Papers 2012-39, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Asongu Simplice, 2013. "Globalization and Financial Market Contagion: Evidence from Financial Crisis and Natural Disasters," Working Papers 13/035, African Governance and Development Institute..
  5. Stéphane Auray & Aurélien Eyquem & Jean-Christophe Poutineau, 2009. "The Welfare Gains of Trade Integration in the European Monetary Union," Working Papers 0927, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  6. Simplice A, Asongu, 2011. "Globalization, financial crisis and contagion: time-dynamic evidence from financial markets of developing countries," MPRA Paper 30120, University Library of Munich, Germany.
  7. C.J.M. Kool & C. Economidou, 2007. "European economic integration and (A)symmetry of macroeconomic fluctuations," Working Papers 07-24, Utrecht School of Economics.
  8. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
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