Financial Harmonization and Financial Development: An Application of Europe’s Financial Services Action Plan

Ozkok, Zeynep (2013): Financial Harmonization and Financial Development: An Application of Europe’s Financial Services Action Plan.

Abstract

The Financial Services Action Plan (FSAP) of the European Commission intends to create an open, secure, integrated financial market across EU member countries. Although recent research has shown a positive impact of the FSAP directives on cross-border lending and industrial growth, the effect on financial development remains to be examined. Using principal component analysis to construct financial, banking sector, bond and stock market development indices, we investigate the impact of financial harmonization policies of the FSAP on financial development in a panel of twenty five EU member states for the period of 1996 – 2007. Taking into account the timing perspective in implementing the FSAP directives across countries we find a positive link between financial harmonization and financial development. The results are shown to be robust to different approaches in constructing the harmonization index and the harmonization difference (relative timing of adoption) variable, and adding further controls and years to account for the recent period.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial integration; European Union; FSAP; Legal, regulatory harmonization; Financial development; Principal component analysis
• Subjects: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development; G - Financial Economics > G2 - Financial Institutions and Services; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development ; Role of International Organizations

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