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Financial integration and capital flows in the new EU Member States

Author

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  • Lorenzo Cappiello
  • Simone Manganelli

Abstract

Recent empirical evidence shows that the financial markets in new EU Member States are significantly less integrated than the corresponding euro area markets. Nevertheless, the integration process is well under way and has even accelerated following EU accession. Progress in financial integration is also confirmed by capital inflows into these economies. This finding is however at odds with the capital outflows typically observed in other emerging economies. According to a recent strand of the literature, capital flows crucially depend, inter alia, on the quality of institutions. We argue that the reforms triggered by the accession process in the new EU Member States have contributed to improving their institutional framework and may therefore help to explain the observed capital flow patterns. JEL Classification: C32, F30, G12

Suggested Citation

  • Lorenzo Cappiello & Simone Manganelli, 2007. "Financial integration and capital flows in the new EU Member States," Research Bulletin, European Central Bank, vol. 6, pages 5-7.
    • Handle: RePEc:ecb:ecbrbu:2007:0006:2
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    File URL: http://www.ecb.europa.eu/pub/pdf/other/researchbulletin06en.pdf
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    Keywords

    integration; new EU member states;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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