Working Paper: NBER ID: w15900
Authors: Sebnem Kalemli-Ozcan; Bent Sorensen; Vadym Volosovych
Abstract: We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset from EU countries over time, we construct a measure of "deep" financial integration at the regional level based on foreign ownership at the firm level. We find a positive effect of foreign ownership on volatility of firms' outcomes. This effect survives aggregation and carries over to regional output. Exploiting variation in the transposition dates of EU-wide legislation, we find that high trust regions in countries who harmonized capital markets sooner have higher levels of financial integration and volatility.
Keywords: financial integration; output volatility; foreign ownership
JEL Codes: E32; F15; F36; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign ownership (F23) | Firm-level volatility (D25) |
| Firm-level volatility (D25) | Regional output volatility (R15) |
| Financial integration (F30) | Regional output volatility (R15) |
| Foreign minority ownership (F23) | Firm-level volatility (D25) |
| Financial integration (F30) | Aggregate volatility (E10) |