Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust
We investigate the degree of financial integration within and between European countries. We construct two measures of de-facto integration across European regions to capture "diversification" and "development" finance in the language of Obstfeld and Taylor (2004). We find evidence that capital market integration within the EU is less than what is implied by theoretical benchmarks and also less than what is found for U.S. states. We ask - why is this the case? Using country-level data for economic institutions, we find that these are not able to explain differences between countries. Using regional data from the World Values Surveys, we investigate the effect of "social capital" on financial integration among European regions. We find regions, where the level of confidence and trust is high, are more financially integrated with each other.
We thank our discussants Phil Hartman, Phil Lane and Enrique Mendoza and the participants at the 2007 AEA Meetings, at the EU Commission Seminar, and at the 2007 NBER International Seminar on Macroeconomics.The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust, Mehmet Fatih Ekinci, Şebnem Kalemli-Özcan, Bent E. Sørensen. in NBER International Seminar on Macroeconomics 2007, Clarida and Giavazzi. 2008