Financial and Economic Growth in Europe: Is the Euro Beneficial for All Countries?

Iordanis Kalaitzoglou () and Beatrice Durgheu ()
Additional contact information
Iordanis Kalaitzoglou: Audencia Business School, Postal: Audencia Business School, special interest group in Regulation Market structure and Asset prices, 8 Route de la Jonelière-BP 31222, 44312, Nantes Cedex 3, France
Beatrice Durgheu: Metroline, Department of Finance, Postal: Metroline, ComfortDelGro House, 329 Edgware Road, Cricklewood, London, NW2 6JP, United Kingdom

Journal of Economic Integration, 2016, vol. 31, issue 2, 414-471

Abstract: We revisit the financial–economic growth nexus, accounting for differential effects of large-scale legislative frameworks, such as political and financial integrations, in Europe. Debt is introduced as an integral component, and potential triple endogeneity is investigated. Empirical findings show that neither political nor financial integration, namely the euro appears to have a direct impact on economic growth. In contrast, only monetary integration has a dual and indirect impact on economic growth. First, the Euro allows for improved access to financing, which enhances economic growth. This increases market values, which further accelerate economic growth. This is only evident within the Eurozone, highlighting a Euro effect, whereas political integration seems to be insufficient in engaging the country in a synergetic endogeneity. Second, improved access to financing induced by the Euro introduces an additional macroeconomic risk of over-borrowing. This reverses the above-mentioned spiral link by decreasing market values and therefore leads the economies to a spiral contraction. Consequently, the suitability of adopting the Euro should depend on each country’s ability to balance its dual role, i.e., the improved access to financing and the risk of over-borrowing.

Keywords: Financial Integration; Euro; Economic Growth; Government Borrowing; Generalized Method of Moments (search for similar items in EconPapers)
JEL-codes: F43 N14 O11 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.e-jei.org/ Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0690

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().