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Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust

In: NBER International Seminar on Macroeconomics 2007

  • Mehmet Fatih Ekinci
  • Şebnem Kalemli-Özcan
  • Bent E. Sørensen

We investigate the degree of financial integration within and between European countries. We construct two measures of de-facto integration across European regions to capture "diversification" and "development" finance in the language of Obstfeld and Taylor (2004). We find evidence that capital market integration within the EU is less than what is implied by theoretical benchmarks and also less than what is found for U.S. states. We ask - why is this the case? Using country-level data for economic institutions, we find that these are not able to explain differences between countries. Using regional data from the World Values Surveys, we investigate the effect of "social capital" on financial integration among European regions. We find regions, where the level of confidence and trust is high, are more financially integrated with each other.

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This chapter was published in:
  • Richard Clarida & Francesco Giavazzi, 2009. "NBER International Seminar on Macroeconomics 2007," NBER Books, National Bureau of Economic Research, Inc, number clar07-1, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 3015.
    Handle: RePEc:nbr:nberch:3015
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