Working Paper: NBER ID: w13440
Authors: Mehmet Fatih Ekinci; Sebnem Kalemli-Ozcan; Bent Sorensen
Abstract: 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.
Keywords: Financial Integration; Social Capital; EU; Trust; Confidence
JEL Codes: F21; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social capital (trust and confidence) (Z13) | financial integration (F30) |
| high levels of trust and confidence (D83) | greater financial integration (F30) |
| higher confidence levels (C12) | lower output-income ratio (E25) |
| trust and confidence (interaction) with initial growth (O39) | capital flows from low to high growth regions (F21) |
| social capital (Z13) | efficiency of capital markets (G14) |