Gains from Financial Integration in the European Union: Evidence for New and Old Members
24 Pages Posted: 3 Jan 2007
Date Written: December 2006
We estimate potential welfare gains from financial integration and corresponding better insurance against country-specific shocks to output (risk sharing) for the twenty-five European Union countries. Using theoretical utility-based measures we express the gains from risk sharing as the utility equivalent of a permanent increase in consumption. We report positive potential welfare gains for all the EU countries if they move toward full risk sharing. Ten country-members who joined the Union in 2004 have more volatile or counter-cyclical consumption and output and would obtain much higher potential gains than the longer-standing fifteen members.
Keywords: EU enlargement, financial integration, welfare gains, risk sharing
JEL Classification: F15, F36, E32
Suggested Citation: Suggested Citation