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Does Financial Openness Promote Economic Integration?

Author

Listed:
  • Fabrizio Carmignani

    (United Nations Economic Commission for Africa)

  • Abdur Chowdhury

    () (United Nations Economic Commission for Europe)

Abstract

The effect of financial openness on economic integration for two clusters of countries is estimated: the formerly planned economies of Eastern Europe and central Asia (emerging market economies) and some western advanced economies. We focus on two dimensions of economic integration: convergence of per-capita incomes across countries and trade integration. We employ both single equation estimation and system estimation to account for endogenous links between trade integration and income convergence. Results show that in the cluster of emerging market economies, financial openness is a powerful instrument of economic integration. In the group of advanced economies, financial openness effectively facilitates income convergence, but its impact on trade integration is ambiguous.

Suggested Citation

  • Fabrizio Carmignani & Abdur Chowdhury, 2007. "Does Financial Openness Promote Economic Integration?," ECE Discussion Papers Series 2007_4, UNECE.
  • Handle: RePEc:ece:dispap:2007_4
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    File URL: http://www.unece.org/fileadmin/DAM/oes/disc_papers/ECE_DP_2007-4.pdf
    File Function: First version, 2007
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    More about this item

    Keywords

    financial openness; economic integration; transition economies; east Europe;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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