| By: |
Sabine Herrmann (Deutsche Bundesbank, Wilhelmp-Epstein-Strasse 14, 60431 Frankfurt am Main.);
Adalbert Winkler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: |
Global financial integration has been associated with divergent patterns of
real convergence and the current account in emerging markets. While countries
in emerging Asia have been running sizeable current account surpluses,
countries in emerging Europe have been facing large current account deficits.
In this paper we test for the relevance of financial market characteristics in
explaining this divergence in the catching-up process in Europe and Asia. We
assume that the two regions constitute distinct convergence clubs, with the
euro area and the United States respectively at their core. In line with the
theoretical literature, we find that better developed and more integrated
financial markets increase emerging markets’ ability to borrow abroad.
Moreover, the degree of financial integration within the convergence clubs –
as opposed to the state of financial integration in the global economy – and
the extent of reserve accumulation are significant factors in explaining the
divergent patterns of real convergence and the current account in the regions
under review. JEL Classification: F15, F21, O16, O52, O53. |
| Keywords: |
Real convergence, economic integration, saving and investment, current account developments, financial markets, emerging market economies. |
| Date: |
2008–06 |
| URL: |
http://d.repec.org/n?u=RePEc:ecb:ecbops:20080088&r=fdg |