Financial Integration and Growth - Is Emerging Europe Different?

Friedrich, Christian; Schnabel, Isabel; Zettelmeyer, Jeromin

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Financial Integration and Growth - Is Emerging Europe Different?

CEPR Discussion Paper No. DP8137

52 Pages Posted: 6 Dec 2010

See all articles by Christian Friedrich

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics; Max Planck Law Network - Max Planck Institute for Research on Collective Goods

Jeromin Zettelmeyer

European Bank for Reconstruction and Development (EBRD)

Date Written: December 2010

Abstract

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.

Keywords: Economic growth, European transition economies, Financial integration, Parent banking, Political integration

JEL Classification: F32, F36, G21, O16

Suggested Citation: Suggested Citation

Friedrich, Christian and Schnabel, Isabel and Zettelmeyer, Jeromin, Financial Integration and Growth - Is Emerging Europe Different? (December 2010). CEPR Discussion Paper No. DP8137, Available at SSRN: https://ssrn.com/abstract=1718932