Working Paper: CEPR ID: DP3684
Authors: Gianni Toniolo; Leandro Conte; Giovanni Vecchi
Abstract: The Paper draws its motivation from the observation that, three years into the single currency, EMU financial markets are making only slow progress towards integration and from the belief that economic history can offer useful insight as to the causes of the phenomenon. In this vein, we investigate a previous case of financial market integration in the wake of monetary unification, that of Italy after 1862.We find that the prices of the Rendita Italiana 5% (Italian Consols) across regional stock exchanges did not fully converge until 1887, twenty five years after the creation of a ?monetary union? in the peninsula. Regression analysis shows that variables such as the spread of ICT, trade volumes and the diffusion of the ?single currency? fail to explain the delay in financial market unification.We argue that markets remained relatively fragmented because local vested interests resisted the legal and regulatory changes needed to make arbitrage across individual stock exchanges efficient.A single Italian financial market appeared only when the State imposed more uniform financial market legislation nationwide, a fact that the EU should perhaps not overlook.
Keywords: financial market integration; monetary union; nineteenth-century Italy; vested interests
JEL Codes: E34; E44; N23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| delay in financial market unification (G19) | local vested interests resisting legal and regulatory changes (K23) |
| introduction of uniform financial market legislation (G18) | reduced influence of local vested interests (H10) |
| new commercial code (K22) | market integration (F02) |
| diffusion of ICT (O33) | market integration (F02) |
| fragmentation of local markets (F12) | prices of rendita italiana not converging (G19) |
| establishment of a unified legal framework (K15) | reduced local rent-seeking behaviors (R38) |
| monetary unification (F36) | market integration (F02) |