How Does International Financial Integration Really Affect Post-Transition Countries' Growth? Empirical evidence from the CEE-10 countries

• Main Authors: Ganić Mehmed, Hrnjić Mahir
• Format: Article
• Language: English
• Published: Sciendo 2021-09-01
• Series: Journal of Central Banking Theory and Practice
• Subjects: international financial integration; economic growth; pooled mean group (pmg) estimator; central; eastern and southeastern europe; f32; f36
• Online Access: https://doi.org/10.2478/jcbtp-2021-0027

This paper seeks to empirically explore how an international financial integration influences a country’s GDP growth. The long run relationship is tested by PMG estimator for the sample of ten EU countries from Central, Eastern and Southeastern Europe (CEE-10 countries) between 1995 and 2017. Prior to the conducting of dynamic panel analysis based on PMG estimators, several panel unit root tests were conducted, as well as panel co integration tests. The findings offer mixed impact financial integration on growth. Among the measures of financial integration, growth of the CEE-10 countries is mostly driven in the long run by FDI inflows as well as remittances and financial openness. On the contrary, the study suggests a reversal relationship between growth and financial integration measured by Gross Foreign Assets and Liabilities in percentages of GDP. It might be explained with a fact that CEE-10 countries have not yet reached a certain level of financial development in order to benefit from financial integration.