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

Abstract

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. The study concludes that international financial integration does not per se enhance economic growth and country’s growth in the CEE-10 countries can be reached at a higher level of financial integration, further increase their financial openness and financial development.

The impact of regulatory quality on deepens level of financial integration: Evidence from the European Union countries (NMS-10)

“…They found that several factors, such as domestic credit, financial openness, and trade openness, have a statistically significant impact on the level of global financial integration in the GCC region. Ganić and Hrnjić (2021) examined the relationship between international financial integration and growth in ten Central and Eastern European (CEE) countries between 1995 and 2017. Their findings revealed a reversal relationship between growth and international financial integration, measured by Gross Foreign Assets and Liabilities to GDP.…”

“…The level of financial integration can be evaluated by using the IFI 1 indicator, which measures the ratio of a country's assets and liabilities to its GDP. This indicator is commonly used to gauge the level of financial integration and openness in a country, and has been used in various studies to assess financial integration (Vo & Daly, 2004;Bekaert et al, 2005;Ganić and Hrnjić, 2021). As capital flows become more fluid, international financial integration tends to improve.…”

“…Determining the causal impact of regulatory quality on financial integration is a key aspect of the analysis. A number of recent studies, such as those by Vo and Daly (2004), Kučerová (2009), Ganić (2020b), Ganić and Hrnjić (2021), have also used this variable in their models of the factors affecting international financial integration.…”

Evaluating the Influence of CEFTA Membership on Financial Integration: An Empirical Panel Data Analysis

“…Ganić's (2020a) study on financial integration in the Emerging Balkans highlighted the low and weak market capitalization of GDP in these countries, indicating underdevelopment and modest progress in financial integration. However, Ganić and Hrnjić (2021) explained in the study how International financial integration affects posttransition countries' growth. Through different empirical evidence, they concluded that when it comes to posttransition countries, there is no strong link between finance integration and growth.…”

Foreign direct investment as a factor of trade development: cases of selected countries

“…Gherghina, L.N. Simionescu, Oana S. Hudea (Gherghina et al, 2019), M. Ganić, M.Hrnjić (Ganić, 2021), B. Setiawan, A. Saleem, R. Jeyakumar Nathan, Z. Zeman, R. Magda and J. Barczi (Setiawan et al, 2021) and others.…”