The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach

Léonore Raguideau

No 2022-7, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: The motivation of this article is to understand the determinants of banking integration of non-Euro CESEE EU Members. One stylized fact for these economies is the building up of external financial vulnerabilities since the beginning of the Transition period, with a large weight of cross-border banking, particularly with the European Union. In relation with the literature on the impact of gross financial flows on financial stability, we therefore estimate the long-term historical, geographical and cultural determinants of cross-border banking claims with a bilateral financial gravity model. We then analyze the impact of domestic (pull), foreign (push) and global factors using the gravity framework. Our results first show that cross-border banking in these economies is significantly driven by geographical proximity and common historical links, particularly with EU Member States. Second, we find that banking sector health variables are more significant as push factors, while structural banking system variables are more significant as pull factors. These results provide evidence in favor of an impact of European banking systems on financial liabilities in this region, in relation with the very high level of EU ownership of banking assets. Finally, US global liquidity factor matters more than exchange rate stability, which points towards policy dilemma effect in the region.

Keywords: Gravity model; cross-border banking; Central Eastern and South Eastern European countries; European Union; push factors; pull factors; global factors; EU; CESEE (search for similar items in EconPapers)
JEL-codes: C23 F34 F36 O52 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fdg and nep-tra
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Related works:
Journal Article: The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach (2023)
Working Paper: The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach (2022)
Working Paper: The case of financial and banking integration of Central, Eastern and South Eastern European countries: a gravity model approach (2022)
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