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Financial integration and growth - Is emerging Europe different?

  • Christian Friedrich

    (Graduate Institute for International and Development Studies, Geneva)

  • Isabel Schnabel

    (Johannes Gutenberg University, Mainz)

  • Jeromin Zettelmeyer

    (EBRD)

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 analyse 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 European Union. 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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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 123.

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Length: 43 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ebd:wpaper:123
Contact details of provider: Postal: One Exchange Square, London EC2A 2JN
Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml

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