Financial Fragmentation and Economic Growth in Europe

Isabel Schnabel and Christian Seckinger

No 10805, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 global financial 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.

Keywords: European union; Financial crisis; Financial fragmentation; Financial integration; Foreign banks; Rajan-zingales methodology; Cross-border lending; Economic growth (search for similar items in EconPapers)
JEL-codes: F36 G01 G15 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-mac
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Financial Fragmentation and Economic Growth in Europe (2015)
Working Paper: Financial Fragmentation and Economic Growth in Europe (2014)
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