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Financial Integration and Growth -Is Emerging Europe Different?

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  • Christian Friedrich

    ()
    (Graduate Institute for International and Development Studies, Geneva, Switzerland)

  • Isabel Schnabel

    ()
    (Chair of Financial Economics, Johannes Gutenberg-UniversitŠt Mainz, Germany)

  • Jeromin Zettelmeyer

    ()
    (European Bank for Reconstruction and Development, London, UK)

Abstract

Using industry-level data, this paper shows that the European transition region benefited much more strongly from financial integration in terms of economic growth than other developing countries in the years preceding the current crisis. We analyze several factors that may explain this finding: financial development, institutional quality, trade integration, political integration, and financial integration itself. The explanation that stands out is political integration. Within the group of transition countries, the effect of financial integration is strongest for countries that are politically closest to the EU. This suggests that political and financial integration are complementary and that political integration can considerably increase the benefits of financial integration.

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File URL: http://www.macro.economics.uni-mainz.de/RePEc/pdf/Discussion_Paper_1013.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1013.

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Length: 52 pages
Date of creation: 17 Nov 2010
Date of revision: 17 Nov 2010
Handle: RePEc:jgu:wpaper:1013

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Keywords: Financial integration; political integration; economic growth; parent banking; European transition economies;

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References

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  1. M. Ayhan Kose & Eswar S. Prasad & Ashley D. Taylor, 2009. "Thresholds in the Process of International Financial Integration," NBER Working Papers 14916, National Bureau of Economic Research, Inc.
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  11. Herrmann, Sabine & Mihaljek, Dubravko, 2011. "The determinants of cross-border bank flows to emerging markets: New empirical evidence on the spread of financial crises," BOFIT Discussion Papers 3/2011, Bank of Finland, Institute for Economies in Transition.
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  15. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
  16. Erik Berglof & Yevgeniya Korniyenko & Alexander Plekhanov & Jeromin Zettelmeyer, 2010. "Understanding the Crisis in Emerging Europe," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(6), pages 985-1008, September.
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Citations

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Cited by:
  1. Gehringer, Agnieszka, 2012. "Financial liberalization, growth, productivity and capital accumulation: The case of European integration," Center for European, Governance and Economic Development Research Discussion Papers 134, University of Goettingen, Department of Economics.
  2. Kosta Josifidis & Radmila Dragutinović Mitrović & Olgica Ivančev, 2012. "Heterogeneity of Growth in the West Balkans and Emerging Europe: A Dynamic Panel Data Model Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(2), pages 157-183, May.
  3. Wendy Carlin, 2011. "Good Institutions are not Enough: Ongoing Challenges of Eastern German Development," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(1), pages 28-34, 05.
  4. Evans, Olaniyi, 2013. "International Financial Integration and The Nigerian Economic Performance: a Var Modeling Approach," MPRA Paper 52459, University Library of Munich, Germany.

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