Economic and Financial Integration of CEECs: The Impact of Financial Instability

Abstract

The recent financial crisis had a powerful impact upon the European countries' economies, in particular on those from Central and Eastern Europe, with some small exceptions. Thus, applying a panel data approach for a large sample of CEECs, we demonstrate that financial instability negatively influences these countries economic and financial integration. If instability is measured by means of a financial instability index, we have used two classical indicators for the economic integration, namely trade openness and trade intensity index. Indicators such as the interest rates co-movement and the asset share of foreign-owned banks were chosen to calculate financial integration. We highlight the fact that the crisis events hinder the process of CEECs' integration into the EU, deepening the economic gaps between more and less developed EU members.Financial instability, financial instability index, economic and financial integration, Central and Eastern Europe