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Financial integration and growth — Why is Emerging Europe different?

Christian Friedrich, Isabel Schnabel () and Jeromin Zettelmeyer ()

Journal of International Economics, 2013, vol. 89, issue 2, 522-538

Abstract: Using industry-level data, this paper tries to explain why financial integration raised growth differentials between externally dependent and less dependent industries in European transition countries, but not in other developing or advanced countries in the years preceding the current crisis. We argue that political integration with countries that have stronger political and economic institutions leads to growth-enhancing foreign investments because investors expect an improvement of institutions in the future. The empirical evidence supports the importance of political integration: within the group of developing countries, the effect of financial integration is larger in countries that are more strongly politically integrated. Such an effect is not found for advanced countries. Our results suggest that political integration can considerably increase the benefits of financial integration in developing countries, even when institutions are still weak.

Keywords: Financial integration; Political integration; Economic growth; European transition countries (search for similar items in EconPapers)
JEL-codes: F21 F36 F50 O16 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (41)

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Related works:
Working Paper: Financial Integration and Growth - Is Emerging Europe Different? (2010) Downloads
Working Paper: Financial Integration and Growth -Is Emerging Europe Different? (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:89:y:2013:i:2:p:522-538

DOI: 10.1016/j.jinteco.2012.07.003

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