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Financial Fragmentation and Economic Growth in Europe

Author

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  • Isabel Schnabel
  • Christian Seckinger

    (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)

Abstract

Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the real growth effects of banking sector integration in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that banking sector integration had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. We conclude that concerns of European policy makers about fragmentation in the European banking sector are justified and that future reintegration is an important building block of future growth perspectives in the European Union.

Suggested Citation

  • Isabel Schnabel & Christian Seckinger, 2014. "Financial Fragmentation and Economic Growth in Europe," Working Papers 1502, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 13 Feb 2014.
  • Handle: RePEc:jgu:wpaper:1502
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    Cited by:

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    2. Harald Oberhofer & Christian Glocker & Werner Hölzl & Peter Huber & Serguei Kaniovski & Klaus Nowotny & Michael Pfaffermayr & Monique Ebell & Nikolaos Kontogiannis, 2016. "Single Market Transmission Mechanisms Before, During and After the 2008-09 Crisis. A Quantitative Assessment," WIFO Studies, WIFO, number 59156, September.

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    More about this item

    Keywords

    Financial fragmentation; financial integration; foreign banks; crossborder lending; economic growth; financial crisis; Rajan-Zingales methodology;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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