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The Impact of Financial Openness on Economic Integration: Evidence from the Europe and the Cis

By Fabrizio Carmignani and Abdur Chowdhury

Abstract

We study whether financial openness facilitates the economic integration of formerly centrally planned economies with the EU-15. Two dimensions of economic integration are considered: cross-country convergence of per-capita incomes and bilateral trade in goods and services. We find that more financially open economies effectively catch-up faster and trade more with the EU-15. These integrationenhancing effects occur over and above any effect stemming from domestic financial deepening and other factors determining growth and trade.Economic integration, financial openness, gravity models, catching-up

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