Financial Fragmentation and Economic Growth in Europe

Isabel Schnabel and Christian Seckinger ()
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Christian Seckinger: Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany

No 1502, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

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.

Keywords: Financial fragmentation; financial integration; foreign banks; crossborder lending; economic growth; financial crisis; Rajan-Zingales methodology (search for similar items in EconPapers)
JEL-codes: F36 G01 G15 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2014-02-13, Revised 2014-02-13
New Economics Papers: this item is included in nep-eec and nep-fdg
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https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1502.pdf First version, 2014 (application/pdf)

Related works:
Working Paper: Financial Fragmentation and Economic Growth in Europe (2015)
Working Paper: Financial Fragmentation and Economic Growth in Europe (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:1502

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