Discussion Paper 18

Financial integration and economic growth in Europe: the impact of the crisis

Juan Fernández de Guevara and Joaquín Maudos

Instituto Valenciano de Investigaciones Económicas (IVIE), Valencia, Spain



The aim of the paper is to analyze the effect of European financial integration on economic growth. We focus on how the international financial crisis that started in 2007 has affected integration and growth. By combining information at country, sector and firm level, we quantify the effect of financial integration on financial development and therefore on economic growth. Our results illustrate that a significant part (42%) of financial development is attributable to progress in integration, accounting for 1.9% of the Euro area’s GDP growth over the period 1999-2010. The drop in the growth rate of financial development due to the crisis has reduced to a third its impact on GDP growth. However, the global nature of the crisis implies that financial integration has not been strongly reversed in comparison to financial development.  Therefore, during the crisis, the contribution of integration to financial development remains high (39%), although its impact on GDP growth decreases (from 0.027 pp. to 0.016 pp.).


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Financial integration and economic growth in Europe: the impact of the crisis


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This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Grant Agreement no:244 709

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