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15 Years from the Eastern Enlargement: Financial Integration and Economic Convergence in Europe

In: Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume II

Author

Listed:
  • Fabrizio Coricelli

    (University of Siena
    Paris School of Economics)

  • Marco Frigerio

    (University of Milan)

Abstract

Central Eastern European Countries (CEECs) went through a process of deep financial integration with advanced European countries, spurred by the entry in the European Union. Financial integration took place through an unprecedented entry of foreign banks in local banking markets, which led to a rapid expansion of credit and often credit booms. The global financial crisis produced a bust of these booms, with severe effects on the real economy. These dynamics raised the question of whether CEECs experienced a phenomenon of “too much credit” or “too much credit growth.” This chapter investigated whether and how the pattern of credit boom and bust affected the productivity of the economy of CEECs through the efficiency of resource allocation within sectors. We found that rapid credit growth exerted negative effects on efficiency in old EU members, but not in CEECs, suggesting that part of the rapid credit growth in CEECs prior to the global financial crisis was an equilibrium phenomenon. Our analysis does not rule out that inefficiencies of rapid credit growth were present also in CEECs in the allocation of resources across sectors and not within sectors.

Suggested Citation

  • Fabrizio Coricelli & Marco Frigerio, 2021. "15 Years from the Eastern Enlargement: Financial Integration and Economic Convergence in Europe," Studies in Economic Transition, in: Michael Landesmann & István P. Székely (ed.), Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume II, chapter 0, pages 131-152, Palgrave Macmillan.
    • Handle: RePEc:pal:stuchp:978-3-030-57702-5_7
    DOI: 10.1007/978-3-030-57702-5_7
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