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Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia

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Listed author(s):
  • Sabine Herrmann
  • Adalbert Winkler

Abstract

This paper examines the relevance of financial market characteristics for explaining the catching-up process in Europe and Asia. Global financial integration has been associated with divergent patterns of real convergence and the current account in emerging markets. While countries in emerging Asia have been running sizeable current account surpluses, countries in emerging Europe have been facing large current account deficits. In this paper we test for the relevance of financial market characteristics in explaining this divergence in the catching-up process in Europe and Asia. We assume that the two regions constitute distinct convergence clubs, with the euro area and the United States respectively at their core. In line with the theoretical literature, we find that better developed and more integrated financial markets increase emerging markets´ ability to borrow abroad. Moreover, the degree of financial integration within the convergence clubs - as opposed to the state of financial integration in the global economy - and the extent of reserve accumulation are significant factors in explaining the divergent patterns of real convergence and the current account in the regions under review.

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers 2008 - 2015 with number 362.

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Length: 51 pages
Date of creation: Mar 2009
Handle: RePEc:euf:ecopap:0362
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Keywords: real convergence; economic integration; saving and investment; current account developments; financial markets; emerging market economies; Real convergence; financial markets; and the current account - Emerging Europe versus emerging Asia; Economic Papers;

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Find related papers by JEL classification:
  • F15 - International Economics - - Trade - - - Economic Integration
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
  • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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Cited by:

  1. Adalbert Winkler, 2012. "The Financial Crisis: A Wake-up Call for Strengthening Regional Monitoring of Financial Markets and Regional Coordination of Financial Sector Policies?," Chapters,in: Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia, chapter 7 Edward Elgar Publishing.
  2. Herrmann, Sabine & Kleinert, Jörn, 2014. "Lucas paradox and allocation puzzle: Is the euro area different?," Discussion Papers 06/2014, Deutsche Bundesbank, Research Centre.
  3. Ruben V Atoyan & Jonathan F Manning & Jesmin Rahman, 2013. "Rebalancing; Evidence from Current Account Adjustment in Europe," IMF Working Papers 13/74, International Monetary Fund.
  4. Lien, Donald & Yang, Li & Zhou, Chunyang & Lee, Geul, 2014. "Co-movement between RMB and New Taiwan Dollars: Evidences from NDF markets," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 265-272.
  5. Niţoi, Mihai & Pochea, Maria Miruna, 2016. "Testing financial markets convergence in Central and Eastern Europe: A non-linear single factor model," Economic Systems, Elsevier, vol. 40(2), pages 323-334.
  6. Amaya Altuzarra & Jesús Ferreiro & Felipe Serrano, 2010. "The role of global imbalances as a cause of the current crisis," Journal of Innovation Economics, De Boeck Université, vol. 0(2), pages 25-48.
  7. Michał Brzozowski & Sadananda Prusty, 2013. "Impact of GDP volatility on current account balances," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 5(3), pages 239-252.
  8. Orszaghova, Lucia & Savelin, Li & Schudel, Willem, 2013. "External competitiveness of EU candidate countries," Occasional Paper Series 141, European Central Bank.
  9. Farkas, Beáta, 2011. "A közép-kelet-európai piacgazdaságok fejlődési lehetőségei az Európai Unióban
    [The development opportunities for the Central-East European market economies within the European Union]    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 412-429.
  10. von Hagen, Jürgen & Zhang, Haiping, 2014. "Financial development, international capital flows, and aggregate output," Journal of Development Economics, Elsevier, vol. 106(C), pages 66-77.
  11. Giuseppe Caivano & Nicola D. Coniglio, 2016. "Long-Run Drivers of Current Account Imbalances in the EU: the Role of Trade Openness," SERIES 03-2016, Dipartimento di Scienze economiche e metodi matematici - Università di Bari, revised May 2016.
  12. Gunther Schnabl & Kristina Spantig, 2016. "(De)Stabilizing Exchange Rate Strategies In East Asian Monetary And Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1640021-01 .
  13. Beáta Farkas, 2012. "The Impact of the Global Economic Crisis in the Old and New Cohesion Member States of the European Union," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(1), pages 53-70.
  14. Adalbert Winkler, 2014. "Finance, growth and crisis: a European perspective," Chapters,in: Financial Cycles and the Real Economy, chapter 12, pages 199-216 Edward Elgar Publishing.

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