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Finance and growth in the EU: new evidence from the liberalisation and harmonisation of the banking industry

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  • De Ãvila, Diego Romero

Abstract

This paper analyses the link between finance and growth by studying the effect that the process of financial deregulation and harmonisation of banking laws at the EU level has brought about on growth over the last 40 years. Our main findings point to the existence of a positive long-run growth impact from the liberalisation of capital controls and the harmonisation of banking legislation. Both policy changes affect growth even after controlling for other pro-growth policies implemented around the same time and they are robust to business cycle effects that could spuriously drive the relation. The analysis of the main channels through which our policy changes may have affected growth indicates that the harmonisation process has impacted growth through the increase in the level and efficiency of financial intermediation and the liberalisation of capital controls has mainly affected growth through improvements in the degree of efficiency in financial intermediation. JEL Classification: G21, G28, O5

Suggested Citation

  • De Ãvila, Diego Romero, 2003. "Finance and growth in the EU: new evidence from the liberalisation and harmonisation of the banking industry," Working Paper Series 266, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2003266
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp266.pdf
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    Cited by:

    1. McAdam, Peter & Willman, Alpo, 2008. "Medium run redux: technical change, factor shares and frictions in the euro area," Working Paper Series 915, European Central Bank.
    2. Romero-Avila, Diego, 2007. "Finance and growth in the EU: New evidence from the harmonisation of the banking industry," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1937-1954, July.
    3. Cândida Ferreira, 2009. "European Integration and the Credit Channel Transmission of Monetary Policy," Working Papers Department of Economics 2009/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Cândida Ferreira, 2017. "Relevance of the EU Banking Sector to Economic Growth," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(2), pages 203-215, May.
    5. Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "The Role of Bank Lending in Market-Based and Bank-Based Financial Systems," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 88-97.

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    More about this item

    Keywords

    banking deregulation; economic growth; European Union; financial development;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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