Financial Harmonization and Industrial Growth: Evidence from Europe

Zeynep Ozkok

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the growth effects of the Financial Services Action Plan (FSAP) of the European Commission, a set of measures and directives that aim to harmonize European financial markets. Using a panel of 25 countries and 30 industries, we find that the standard specification predicts harmonization to lower growth, though the negative effect is mitigated for industries that depend more on external finance. We then show that this seemingly surprising result is due to omitted variable bias. We would expect early adopters to bear more of the costs and experience less of the benefits of harmonization. Once we control for the relative timing of adoption, harmonization is shown to have a positive effect on growth. This finding is robust to including further controls, splitting up the sample into different groups of countries, and extending the model to a dynamic setting.

Keywords: Financial integration; Legal, regulatory harmonization; External finance dependence; European Union; FSAP (search for similar items in EconPapers)
JEL-codes: F15 F36 F55 G15 G28 K4 O4 (search for similar items in EconPapers)
Date: 2012-12-15, Revised 2014-09-25
New Economics Papers: this item is included in nep-fdg and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58875

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