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Gains from Financial Integration in the European Union: Evidence for New and Old Members

  • Yuliya Demyanyk

    ()

    (Federal Reserve Bank of St. Louis)

  • Vadym Volosovych

    ()

    (Department of Economics, College of Business, Florida Atlantic University)

We estimate potential welfare gains from financial integration and corresponding better insurance against country-specific shocks to output (risk sharing) for the twenty-five European Union countries. Using theoretical utility-based measures we express the gains from risk sharing as the utility equivalent of a permanent increase in consumption. We report positive potential welfare gains for all the EU countries if they move toward full risk sharing. Ten country-members who joined the Union in 2004 have more volatile or counter-cyclical consumption and output and would obtain much higher potential gains than the longer-standing fifteen members.

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File URL: http://home.fau.edu/vvolosov/web/DV_EU_20Feb2008JIMFproofed.pdf
File Function: Revised version, 2007
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Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 06009.

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Length: 28 pages
Date of creation: Dec 2006
Date of revision: Aug 2007
Handle: RePEc:fal:wpaper:06009
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