Has the Financial Integration affected the European Union (EU) trade with the New Member Countries from Central and Eastern Europe (CEEC) during 1994–2013?

Abstract

This study would examine whether the European financial integration has affected the CEEC exports to the EU countries during 1994–2013. The results indicate that the higher stock market and bank development have negative rather than positive effect on exports. The lack of the positive stock market capitalization effect can be attributed to the timing of the euro adoption during the financial crisis. The lack of the positive bank credit effect can be explained by the lack of bank credit increase for exports despite the EU bank presence. Second, the results suggest that the higher CEEC skill endowment has boosted exports before their EU membership. This can be due to the implementation of the free trade agreements since the 1990s. On the contrary, the higher EU skill endowment has decreased exports as the EU countries have lower demand for the labor-intensive products. Third, the positive CEEC technology spillover effect on exports has decreased with distance due to the higher transaction costs involved. In contrast, the EU technology spillover has boosted exports regardless of their distance.