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Economic growth and capital flow in European countries in pre and post-crisis periods.

Ketenci, Natalya (2015): Economic growth and capital flow in European countries in pre and post-crisis periods.

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Abstract

A lot of attention in the literature has been given to an important issue of the effect of capital mobility on economic growth of developing countries and little attention has been devoted to developed countries. Developed countries are main players in the global financial market. Lately, increasing number of financial crises had negative effect not only on developing countries but on developed countries as well. Particularly the global financial crisis of 2008 had a negative impact on advanced economies. This paper investigates the relationship between economic growth and international capital flows in the EU members before and after the global financial crisis. The study examines how these relationships change when countries in the considered panel vary. Panel estimations using annual data for the period 1995-2013 are made for different groups of European countries, such as EU27, EU15, Eurozone and CEE members of EU. A dynamic panel data applies the Generalized Method of Moments estimation technique, developed by Hansen (1982). Empirical results reveal that relationships between economic growth and capital flows significantly vary between considered groups. This study finds evidence that after the global financial crisis, economic growth in EU15 and Eurozone groups became more sensitive to capital flows compared to the pre-crisis period.

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