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Financial and Economic Growth in Europe : Is the Euro Beneficial for All Countries?

Author

Listed:
  • Kalaitzoglou, Iordanis

    (Audencia Business School)

  • Durgheu, Beatrice

    (Metroline, Department of Finance)

Abstract

We revisit the financial–economic growth nexus, accounting for differential effects of large-scale legislative frameworks, such as political and financial integrations, in Europe. Debt is introduced as an integral component, and potential triple endogeneity is investigated. Empirical findings show that neither political nor financial integration, namely the euro appears to have a direct impact on economic growth. In contrast, only monetary integration has a dual and indirect impact on economic growth. First, the Euro allows for improved access to financing, which enhances economic growth. This increases market values, which further accelerate economic growth. This is only evident within the Eurozone, highlighting a Euro effect, whereas political integration seems to be insufficient in engaging the country in a synergetic endogeneity. Second, improved access to financing induced by the Euro introduces an additional macroeconomic risk of over-borrowing. This reverses the above-mentioned spiral link by decreasing market values and therefore leads the economies to a spiral contraction. Consequently, the suitability of adopting the Euro should depend on each country’s ability to balance its dual role, i.e., the improved access to financing and the risk of over-borrowing.

Suggested Citation

  • Kalaitzoglou, Iordanis & Durgheu, Beatrice, 2016. "Financial and Economic Growth in Europe : Is the Euro Beneficial for All Countries?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 31(2), pages 414-471.
    • Handle: RePEc:ris:integr:0690
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    Citations

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    Cited by:

    1. Ehigiamusoe, Kizito Uyi & Lean, Hooi Hooi, 2019. "Do economic and financial integration stimulate economic growth? A critical survey," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-27.
    2. Lucke, Bernd, 2022. "Growth Effects of European Monetary Union: A Synthetic Control Approach," MPRA Paper 115373, University Library of Munich, Germany.
    3. Kizito Uyi Ehigiamusoe & Hooi Hooi Lean & Chien-Chiang Lee, 2019. "Moderating effect of inflation on the finance–growth nexus: insights from West African countries," Empirical Economics, Springer, vol. 57(2), pages 399-422, August.
    4. Kizito Uyi Ehigiamusoe & Hooi Hooi Lean, 2018. "Tripartite Analysis of Financial Development, Trade Openness and Economic Growth: Evidence from Ghana, Nigeria and South Africa," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(2), June.
    5. Nenubari Ikue John & Ifeanyichukwu Lucky Amabuike & Joseph Ade Ajaba & John Akin Sodipo & Linus Bamekpari Enegesi, 2020. "Financial system, trade concentration and economic growth in West African Monetary Zone (WAMZ)," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(4), pages 426-436, July.
    6. Constantin Colonescu, 2017. "Macroeconomic Effects of the European Monetary Union: A Counterfactual Analysis," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 3(2), pages 171-186, April.

    More about this item

    Keywords

    Financial Integration; Euro; Economic Growth; Government Borrowing; Generalized Method of Moments;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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