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Journal of Economic Integration 2016 June;31(2) :414-471.
DOI: https://doi.org/10.11130/jei.2016.31.2.414
Financial and Economic Growth in Europe
: Is the Euro Beneficial for All Countries?
Iordanis Kalaitzoglou and 
Beatrice Durgheu 
Audencia Business School, ReMA, France
Metroline, Department of Finance, London, United Kingdom
Corresponding Author: Iordanis Kalaitzoglou ,Tel: 0033 (240) 37 8102, Email: ikalaitzoglou@audencia.com
Copyright ©2016 Journal of Economic Integration
ABSTRACT
We revisit the financial–economic growth nexus, accounting for differential effects of large-scale legislative frameworks, such as political and financial integrations, in Europe. Debt is introduced as an integral component, and potential triple endogeneity is investigated. Empirical findings show that neither political nor financial integration, namely the euro appears to have a direct impact on economic growth. In contrast, only monetary integration has a dual and indirect impact on economic growth. First, the Euro allows for improved access to financing, which enhances economic growth. This increases market values, which further accelerate economic growth. This is only evident within the Eurozone, highlighting a Euro effect, whereas political integration seems to be insufficient in engaging the country in a synergetic endogeneity. Second, improved access to financing induced by the Euro introduces an additional macroeconomic risk of over-borrowing. This reverses the above-mentioned spiral link by decreasing market values and therefore leads the economies to a spiral contraction. Consequently, the suitability of adopting the Euro should depend on each country’s ability to balance its dual role, i.e., the improved access to financing and the risk of over-borrowing.

JEL Classification
F43: Economic Growth of Open Economies
O11: Macroeconomic Analyses of Economic Development
N14: Europe: 1913?
Keywords: Financial Integration | Euro | Economic Growth | Government Borrowing | Generalized Method of Moments
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