Process Of Financial Integration Research Articles

Financial and trade integration in the EU countries

Because of the creation and enlargement of the Eurozone, the importance of monetary integration is increasing and is the subject of a number of theoretical and empirical studies. The adoption of a common currency has to be accompanied by financial market integration. The aim of the paper is to assess the relationship between financial and trade integration in the EU member countries (divided into three subsamples: EU27, EU10, and EU17) over the period 1993–2012 (and two subperiods 1993–2007 and 2008–2012). We use quantity-based measures of financial integration derived from the countries’ international investment positions with a view to the foreign trade and the method of correlation analysis (including the moving correlation method). We conclude that the progress in financial integration was smaller in the EU10 countries compared to the EU16 countries, i.e. the pace of financial integration was higher in the EU16 countries than in the EU10 countries. The process of trade integration in all EU countries was not as fast as the process of financial integration. We also conclude that there is a linear association between financial and trade integration in the pre-crisis period (1993–2007), especially in the EU10 countries (compared to the EU16 countries). However, this relationship was seriously weakened by the financial crisis. Financial and trade integration are interconnected processes and should not be assessed separately. However, world trade (and thus financial integration) can be undermined by limiting trade finance as a result of tightening financial regulation and supervision after a decade of loose regulation and supervision (e.g. by the implementation of the Basel III capital framework).

EU Accession, Financial Integration, and Contagion Effects: Dynamic Correlation Analysis of CEEC-3 Bond Markets

In this paper, we investigate the conditional correlations between the bond markets in CEEC-3 (i.e., Poland, Czech Republic, and Hungary) and Germany from 2000 to 2013 using the asymmetric dynamic conditional correlation model developed by Cappiello et al. (J Financ Econ 4:557–572, 2006). CEEC-3 comprise emerging transition economies that became European Union (EU) members in 2004, while Germany serves as a representative of the EU because it is the largest economy in the eurozone. Based on the presented analytical models, we make four important findings. First, we show that financial integration had already evolved before the adoption of the euro in 2004 in the Czech Republic, while the financial integration process continues in Poland but not in Hungary. Second, the bond markets in both Poland and Hungary decreased their dependence on that in Germany during the global financial crisis period. Third, financial contagion did not occur in the bond markets in CEEC-3 and Germany during the European sovereign debt crisis period. Finally, we can observe asymmetric effects on returns over time when markets fluctuate sharply.

Is there financial integration in the equity markets of the European Union?

Both casual observation and empirical research suggest that developed equity markets around the world, including the major European markets, are now highly integrated. Financial integration is a key goal of the European Union (EU) and was one motive for the adoption of the euro. In this article, we examine how far the process of financial integration has gone in the equity markets of the EU. We use an econometric methodology that permits us to measure the equity market convergence while allowing for a range of possible time paths, and for heterogeneity across countries. Our tests reject the hypothesis of overall convergence in the European equity markets. We do, however, find evidence of convergence within three distinct and economically meaningful subgroups of European markets. We find no evidence that the Euro has hastened equity market convergence amongst its members, above and beyond the broader global trends of lowered institutional and legal barriers and market liberalization.

The main aspects of financial regulators organization. EU experience

This article is dedicated to analysis of modern trends of the EU financial service integration processes development. The most important stages of financial integration legal framework development in the EU are considered chronologically. The article contains deep research of financial integration institutional basis transformation, greatly strengthened in the result of global financial crisis of 2008, which entailed the improvement of financial regulators.. The author raises some of the problems of financial and economic regulation and accentuates, that the EU is consistently improving its mechanism of financial services regulation each time becoming more efficient. Next stage of the reform will start in 2013, when important legislative initiatives in the EU financial sector shall be implemented.

Integracja rynków finansowych w Unii Europejskiej

The integration of financial markets is one of the stages of economic integration. The trends for the integration of financial markets is observed both on a global scale, as well as its various regions. The integration of financial markets may occurs as a result of actions by the authorities, but also by the international free market processes – globalization. Speaking about the integration of EU financial markets, we mean creating opportunities for free movement of capital and financial services in the EU and the single currency. As a result of increase in the financial integration process in Europe the value of the flow of capital between countries has significantly increased. With the progress of economic integration in the EU, the EU as a whole has become a stronger business partner and was able to invest more beyond its borders, as well as more investments flowed from the third countries. The integration of financial markets through greater development of the financial markets is leading to faster economic growth. It can bring many benefits, but also risks. Benefits should be seen in the possibility to boost the GDP growth, the risks in the existence of increasingly stronger links between national markets and intermediaries acting on that markets. A particularly important issue is the contagion effect. Additionally, in case of institutional mismatches on the side of economic policy, financial integration can also have negative effects on the economy, such as greater probability of financial crisis and economic recession, because the price for increased integration of financial markets is an increase in the risk of financial crises. Economic growth stimulated by the development of financial markets should be accompanied by proper regulation of markets to prevent future crisis. However, it must be also remembered that the growth of the institutions may limit the development of markets.

Assessing the financial integration of Central and Eastern European countries with the euro area: Evidence from panel data cointegration tests

L’objectif de ce papier est d’évaluer le niveau d’intégration financière des pays d’Europe Centrale et Orientale (PECO) vis-à-vis de la zone euro dans la perspective de leur intégration au sein de l’Union économique et monétaire (UEM). Nous retenons l’approche développée par Feldstein-Horioka en estimant le coefficient de corrélation entre taux d’épargne et taux d’investissement sur un panel non-stationnaire et hétérogène composé des 10 PECO et de la zone euro. Afin de pallier certains problèmes empiriques soulevés par cette approche, nous utilisons les techniques économétriques les plus récentes de cointégration en panel. Nos résultats montrent que le processus d’intégration financière des PECO au sein de la zone euro n’est pas encore achevé et qu’il est étroitement lié au régime monétaire suivi par ces différents pays. Classification JEL : C23 ; F31 ; F41.

MIĘDZYNARODOWY KRYZYS FINANSOWY – KONSEKWENCJE DLA OTOCZENIA REGULACYJNEGO ORAZ PROCESÓW INTEGRACYJNYCH NA RYNKACH FINANSOWYCH UNII EUROPEJSKIEJ

International financial crisis of the recent years has discovered weaknesses in the international financial architecture, including in particular the inadequacy of prudential regulations, also in the European Union. The collapse of financial markets influenced negatively the indicators of financial integration in the Euro zone countries and other EU member states. This is also due to the fact, that cross-border activity has suffered more during the crisis. The financial system reform measures taken by the authorities of the European Union's are an ambitious plan for the coming years and their implementation should improve the conditions in the financial markets and foster financial integration process, which is necessary for the proper functioning of the European economy.

Assessing the financial integration of Central and Eastern European countries with the euro area: Evidence from panel data cointegration tests

The aim of this paper is to assess the financial integration degree of the Central and Eastern European Countries (CEECs) with the euro area in the prospect of their integration in the Economic and Monetary Union (EMU). To this end, we test the Feldstein-Horioka regression for a non-stationary and heterogeneous panel of 10 CEECs and the euro area. In order to overcome some empirical shortcomings of this approach, we employ the recently developed panel data unit root tests and cointegration techniques. The empirical findings reveal that the financial integration process of the CEECs with the euro area is not yet complete. Another contribution of this paper is to show that this process is linked to the institutional monetary arrangement of these countries.

Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies

Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.

International Financial Integration, Investment and Economic Performance in Sub-Saharan African Countries

This paper examines the issues of international and regional financial integration and its impact taking a sample 25 SSA countries. The research tests both the direct and indirect channels through which the impact of financial integration works and is transmitted to the real economy. Directly, it is argued that financial openness affects economic growth through enabling access to foreign financial markets, increasing financial service efficiency and helping in diversification of risks and consumption smoothing. Thus while inducing additional capital investment, it also fosters macroeconomic discipline. Indirectly, the process of international financial integration facilitates the transfer of technological know-how, promotes trade and enhances specialization. While financial openness of recent years has laid a strong foundation to consolidate financial integration between regions and with international financial markets, we do not observe a robust link between financial openness and economic growth in SSA region. The empirical analysis considers the possibility of a positive indirect effect, and we report evidence in favour of the indirect transmission root. From our results, we observe a positive and statistically significant association between international financial integration and financial development under all its selected indicators. This finding suggests that financial capital market integration aids growth indirectly through promoting domestic financial markets. The study reports evidence suggesting that good institutions, higher level of human capital, and stable macroeconomic environment play an important role in mitigating the negative impacts of international financial openness.

The Equity Risk Premium: Empirical Evidence from Emerging Markets

The analysis of the Equity Risk Premium (ERP) and the research e! orts aimed at solving the Equity Premium Puzzle (Mehra and Prescott 1985), are still widely discussed in the economic and financial literature. The purpose of this paper is to show that di! erences in the ERP between developed and emerging markets lead to many empirical asset pricing issues. Using data from both markets, we first provide an ex-post simple time series analysis on the ERP. Compared to developed markets, and in line with existing literature, we find that emerging markets compensate investors with higher returns. We observe that the time varying nature of the ERP in emerging economies, relates mainly to economic cycles, shocks and other macro phenomena (i.e. global financial market integration). Basic statistics also show that during the last decade the ERP shrunk, especially in advanced economies. To improve investigations on the higher emerging markets’ equity premium, a standard global asset pricing model is adopted. On one hand, we mainly find that the one-factor model does not fully predict emerging markets’ equity premia. On the other hand, we discover that the inclusion of liquidity conditions and time-varying components provides reasonable explainations for the behaviour of equity premia in these “young” markets. Our final findings mainly suggests that global business cycle and financial integration process are crucial in determining the risk associated to emerging markets’ investments.

Financial Integration and Consumption Smoothing

We test if financial integration improves household consumption smoothing using microeconomic data. We find that the process of financial market integration and liberalisation brought about by the introduction of the euro has not affected the sensitivity of consumption with respect to income shocks in Italy. This article also makes a significant contribution from a methodological point of view, because our procedure does not require that consumption and income are available in the same panel data set. It can therefore be applied in all countries in which repeated cross-sectional consumption data can be combined with panel data on income.

The Impact of the European Financial Integration Process and Other International Tendencies on the Romanian Stock Market

The study presents in a comprehensive way the effects that deregulation, internationalisation, integration, financial innovation and the development of the institutional investors have had on the Romanian stock market. Using dates provided by several relevant sources on the field, like the Bucharest Stock Exchange or Intercapital, we have established in which extent these tendencies emerged on the Romanian stock market and if our stock market has already reached the point where it will be able to fully integrate itself in the European financial system.

Regulating Multinational Banks in Europe: An Assessment of the New Supervisory Framework

In this paper, we examine recent developments and new perspectives of European banking regulation from the viewpoint of multinational banks. Our approach is justified on at least three grounds. First, cross-border banking groups were at the centre of the recent financial turmoil, which seriously affected many of them. Second, and as a consequence, recent reforms in Europe and elsewhere were particularly addressed to cross-border banking groups and other systemically relevant institutions. Third, European harmonization was largely built along the model of the (stand-alone) cross-border bank mainly operating through branches, whereas European financial markets see cross-border banking groups with subsidiaries in several countries as major players. After introducing the mismatch between national banking supervision and international banking groups, we analyze the recent developments of EU cross-border supervision with respect to both branch and subsidiary structures of multinational banks. Subsequently, we examine the proposed new regulatory architecture, which is based on the distinction between macro- and micro- prudential supervision, and includes new European bodies and a network of European financial supervisors. We claim that the proposed new European supervisory architecture should be backed with an appropriate framework for crisis management and resolution. Due to the specificities of multinational banks and the unique features of their corporate governance, we argue for uniform rules and a set of tools for early intervention and resolution. Otherwise, fragmentation of ailing institutions along national borders will limit the scope for and possibly lead to a reversal of the European financial integration process. From this perspective, the steps taken so far in the EU, while remarkable, do not seem sufficient. Moreover, their effectiveness very much depends on how crisis management and resolution will be regulated.

The New Financial Stability Architecture in the EU

After the introduction of the euro in 1999, the debate on the financial stability architecture in the EU focused on the adequacy of a decentralised setting based on national responsibilities for preventing and managing crises. The Financial Services Action Plan in 1999 and the introduction of the Lamfalussy process for financial regulation and supervision in 2001 enhanced the decentralised arrangements by increasing significantly the level of legal harmonisation and supervisory cooperation. In addition, authorities adopted EU-wide MoUs to safeguard cross-border financial stability. In this context, the financial crisis has proved to be a major challenge to the ongoing process of European financial integration. In particular, momentous events such as the freezing of interbank markets, the loss of confidence in financial institutions, runs on banks and difficulties affecting cross-border financial groups, questioned the ability of the EU financial stability architecture to contain threats to the integrated single financial market. In particular, the crisis has demonstrated the importance of coupling to micro-prudential supervision a macro dimension aimed at a broad and effective monitoring and assessment of the potential risks covering all components of the financial system. In Europe, following the de Larosiere Report, the European Commission has put forward proposals for establishing a European System of Financial Supervision and a European Systemic Risk Board, the latter body to be set up under the auspices of the ECB. While the details for the implementation of these structures still need to be spelt out, they should reinforce significantly – ten years after the introduction of the euro – the financial stability architecture at the EU level.

Impact Of Globalization On Women's Health Due To Work In Pakistan

The process of globalization, financial integration, free trade and investment has profoundly transformed the lives of women through out the world. Globalization policies have been preceded by national adjustment proposals, privatization of state enterprises, restructuring of employment policies from secure employment to flexible, temporary work, relaxation of labour laws, etc. which leads to the opening of markets. The world Bank and IMF have created an unjust packet of neo-liberal policies called Structural Adjustment Policies (SAP) and caused enormous difficulties for poor nations. Furthermore, behind the whole process of globalization unscrupulous employers are abusing the basic rights of a predominant young female workforce. This study has been designed to find out the effects of globalization on women’s health and their lives and show the human cost of the globalization experiment in Pakistan.

Financial Integration, Financial Development, and Global Imbalances

Global financial imbalances can result from financial integration when countries differ in financial markets development. Countries with more advanced financial markets accumulate foreign liabilities in a gradual, long‐lasting process. Differences in financial development also affect the composition of foreign portfolios: countries with negative net foreign asset positions maintain positive net holdings of nondiversifiable equity and foreign direct investment. Three observations motivate our analysis: (1) financial development varies widely even among industrial countries, with the United States on top; (2) the secular decline in the U.S. net foreign asset position started in the early 1980s, together with a gradual process of international financial integration; (3) the portfolio composition of U.S. net foreign assets features increased holdings of risky assets and a large increase in debt.

European stock market integration: Fact or fiction?

The objective of this study is to determine the dynamics and contemporaneous interactions of Euro stock markets at the country and economic sector level. Overall test results have revealed the time-varying nature of the financial market integration process. Promoted by the anticipation and subsequently the formation of the currency union Euro stock markets became more integrated between 1998 and 2006. Monetary policy convergence, however, may have facilitated the divergence of economic variables. Evidence is found that return behavior is changing and stock markets within the Euro zone are starting to drift apart.

How Does European Integration Affect the European Stock Markets?

This paper examines the integration of stock markets in Germany, France, Netherlands, Ireland and UK over January 1973-August 2008 at the aggregate market and industry level considering the following industries: basic materials, consumer goods, industrials, consumer services, health care and financials. The analysis is carried out by using correlation analysis, s-convergence and s-convergence methods. s-convergence serves to measure the speed of convergence and s-convergence serves to measure the degree of financial integration. It might be expected a priori that European stock markets have converged during the process of monetary, economic and financial integration in Europe. This study offers evidence for an increasing degree of integration both at the aggregate level and also at the industry level, although some differences in the speed and degree of convergence exist among stock markets. Surprisingly, there is an upswing of cross sectional dispersion for health care industry, which is more prone to regional shocks. The other industries show a significant s-convergence. The average half-life of a shock to convergence changes at a range from 5.75 days for aggregate market to 10.25 days for consumer goods.

Does Insurance Market Activity Promote Economic Growth? A Cross‐Country Study for Industrialized and Developing Countries

AbstractInsurance market activity may contribute to economic growth, both as financial intermediary and provider of risk transfer and indemnification, by allowing different risks to be managed more efficiently and by mobilizing domestic savings. During the last decade, there has been faster growth in insurance market activity, particularly in emerging markets, given the process of financial liberalization and integration, which raises questions about the overall impact on economic growth. This article tests whether there is a causal relationship between insurance market activity (life and nonlife insurance) and economic growth. Using the generalized method of moments (GMM) for dynamic models of panel data for 55 countries between 1976 and 2004, I find robust evidence for this relationship. Both life and nonlife insurance have a positive and significant causal effect on economic growth. For life insurance, high‐income countries drive the results, and for nonlife insurance, both high‐income and developing countries drive the results.