THE IMPACT OF FINANCIAL OPENNESS ON ECONOMIC
INTEGRATION: EVIDENCE FROM THE EUROPE AND THE CIS
Fabrizio Carmignani and Abdur Chowdhury*
11 April 2005.
Abstract
We study whether financial openness facilitates the economic integration of formerly
centrally planned economies with the EU-15. Two dimensions of economic
integration are considered: cross-country convergence of per-capita incomes and
bilateral trade in goods and services. We find that more financially open economies
effectively catch-up faster and trade more with the EU-15. These integration-
enhancing effects occur over and above any effect stemming from domestic financial
deepening and other factors determining growth and trade.
Keywords: Economic integration, financial openness, gravity models, catching-up
JEL Classification: F10, F15, F30, F36, F40
* Both authors are with the Economic Analysis Division, United Nations Economic Commission for
Europe (UNECE), Palais des Nations, 8-14 Avenue de la Paix, CH-1211 Geneva 10, Switzerland. E-
mails: [email protected], [email protected]. We acknowledge helpful
comments from our colleagues at the Economic Analysis Division. Christine Wolfgramm provided
excellent research assistance. We are solely responsible for any errors and inconsistencies. The views
expressed in the paper are our own and do not necessarily reflect those of UNECE Secretariat.