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Financial integration and financial development in transition economies : what happens during financial crises ?

  • Arjana Brezigar-Masten

    ()

    (Institute of Macroeconomic Analysis and Development - IMAD)

  • Fabrizio Coricelli

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPR - Centre for Economic Policy Research)

  • Igor Masten

    ()

    (University of Ljubljana - Faculty of Economics)

This papers provides an empirical analysis of the role of financial development and financial integration in the growth dynamics of transition countries. We focus on the role of financial integration in determining the impact of financial development on growth, distinguishing "normal times" from periods of financial crises. In addition to confirming the significant positive effect on growth exerted by financial development and financial integration, our estimates show that a higher degree of financial openness tends to reduce the contractionary effect of financial crises, by cushioning the effect on the domestic supply of credit. Consequently, the high reliance on international capital flows by transition countries does not necessarily increase their financial fragility. This implies that financial protectionism is a self-defeating policy, at least for transition countries.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00469499.

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Date of creation: Feb 2010
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Handle: RePEc:hal:cesptp:halshs-00469499
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