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Financial Integration and Growth -Is Emerging Europe Different?

  • Christian Friedrich

    ()

    (Graduate Institute for International and Development Studies, Geneva, Switzerland)

  • Isabel Schnabel

    ()

    (Chair of Financial Economics, Johannes Gutenberg-UniversitŠt Mainz, Germany)

  • Jeromin Zettelmeyer

    ()

    (European Bank for Reconstruction and Development, London, UK)

Using industry-level data, this paper shows that the European transition region benefited much more strongly from financial integration in terms of economic growth than other developing countries in the years preceding the current crisis. We analyze several factors that may explain this finding: financial development, institutional quality, trade integration, political integration, and financial integration itself. The explanation that stands out is political integration. Within the group of transition countries, the effect of financial integration is strongest for countries that are politically closest to the EU. This suggests that political and financial integration are complementary and that political integration can considerably increase the benefits of financial integration.

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File URL: http://www.macro.economics.uni-mainz.de/RePEc/pdf/Discussion_Paper_1013.pdf
File Function: First version, 2010
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Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1013.

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Length: 52 pages
Date of creation: 17 Nov 2010
Date of revision: 17 Nov 2010
Handle: RePEc:jgu:wpaper:1013
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