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Non-linear growth effects of financial development: Does financial integration matter?

Author

Listed:
  • Arjana Brezigar-Masten

    () (Institute of Macroeconomic Analysis and Development - IMAD)

  • Fabrizio Coricelli

    () (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, CEPR - Center for Economic Policy Research - CEPR, PSE - Paris School of Economics)

  • Igor Masten

    () (University of Ljubljana - Faculty of Economics)

Abstract

Using both macro- and industry-level data this paper analyses the non-linear effects of financial development and international financial integration on economic growth in Europe. Special attention is devoted to modeling threshold effects with respect to the depth of financial markets as a measure of economies' absorption capacity. Results reveal evidence of significant non-linear effects, with less developed European countries gaining more from financial development. In contrast, benefits of international financial integration become significant at higher levels of financial development. The data show that monetary integration in Europe significantly contributed to a higher degree of financial integration. Entry of new EU members to the European Monetary Union may thus be the mechanism ensuring a virtuous development circle, as the adoption of the Euro may allow the development of domestic financial markets and financial integration to go hand-in-hand.

Suggested Citation

  • Arjana Brezigar-Masten & Fabrizio Coricelli & Igor Masten, 2008. "Non-linear growth effects of financial development: Does financial integration matter?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00634188, HAL.
  • Handle: RePEc:hal:cesptp:hal-00634188
    DOI: 10.1016/j.jimonfin.2007.12.009
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00634188
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