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Europe as a convergence engine -- heterogeneity and investment opportunities in emerging Europe

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  • Stojkov, Aleksandar
  • Zalduendo, Juan

Abstract

This paper provides empirical evidence that countries in emerging Europe reaped the benefits of international financial integration over the past 12 years by attracting sizeable foreign capital inflows and accelerating medium-term growth. But the aggregate pattern masks substantial heterogeneity across countries; namely, new European Union member states and the European Union candidate countries are different from the European Union neighborhood. The growth benefits are supported from both a flow and a stock perspective in terms of the link between foreign savings and growth. While foreign savings might in part substitute for national savings, the analysis finds that the channel to high growth in these countries is, primarily, through making possible the pursuit of investment opportunities that would otherwise remain unfunded; in turn, this seems to be intimately linked to the opportunities created by European Union membership. Although this conclusion does not disappear if the outlier observations of the credit boom period that preceded the financial crisis are dropped from the sample, it does suggest that these excesses did not play as positive a role for growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5837.

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Date of creation: 01 Oct 2011
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Handle: RePEc:wbk:wbrwps:5837

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Keywords: Economic Theory&Research; Currencies and Exchange Rates; Achieving Shared Growth; Emerging Markets; Access to Finance;

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  1. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
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  9. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  10. Parikh, Ashok, 2004. "Relationship between Trade Liberalisation, Growth and Balance of Payments in Developing Countries : An Econometric Study," HWWA Discussion Papers 286, Hamburg Institute of International Economics (HWWA).
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