Tax Systems, Financial Integration and Efficiency of European Capital Markets

One of the many definitions of financial globalization is integration of domestic financial system of a country with the global financial markets and institutions. Enabling framework of financial globalization essentially includes liberalization and deregulation of the domestic financial sector as well as liberalization of the capital account. As economies progressively integrate globally, pari passu the financial structures of markets and the world of finance change. Financial globalization cannot be considered a novel phenomenon. Trans-country capital movements are centuries old. The oil shock of 1973 and the collapse of the Bretton Woods system, both of these developments were momentous and were responsible for laying the foundation of the contemporary era of financial globalization. After the collapse of the Bretton Woods system, some middle-income developing economies began to liberalize and open up for greater capital mobility, while keeping an autonomous control over their monetary policy. Advances in IT and computer technology are cited as one of the most important factors driving and supporting financial globalization. Transnational corporations (TNCs) also helped in global financial integration. They expanded their networks by merging with or acquiring other national and international firms. The prime movers in financial globalization are governments, borrowers, investors, and financial institutions. Each one of these market participants propelled economies towards financial integration in a proactive manner. Financial globalization has caused dramatic changes in the structure of national and international capital markets. The most significant change in the capital markets was in the banking system, which went through a process of dis-intermediation. This was a market transformation of fundamental nature. Contagions and crises are the downsides of financial globalization. Economic and financial crises of the 1990s portend to the fact that financial globalization is not a win-win game, and that it can potentially lead to serious disorder and high cost in terms of bank failures, corporate bankruptcies, stock market turbulence, depletion of foreign exchange reserves, currency depreciation and increased fiscal burden. A unique characteristic of globalized financial markets is reversal of capital flows when market perception regarding the creditworthiness of the borrowing entity changes. Cross-country financial flows to the emerging market economies were low, at during the mid-1970s. They increased at a healthy clip during the decades of 1980s and 1990s, peaking in 1997. They suffered a sharp decline after that because of the Asian and Russian financial and economic crises. The composition of external capital underwent a dramatic transformation during this period. Official flows either stagnated or declined. As a result their relative significance in global capital flows dwindled. In their place, private capital flows became the major source of external finance for a good number of emerging market economies. FDI became an important and dependable source of finance for the emerging markets and other middle-income economies during the decade of the 1980s and 1990s. Portfolio investment in stocks and bond markets also increased substantially. Global institutional investors found this channel of investment functional and profitable. Mutual funds, insurance companies, and pension funds channeled large amounts through portfolio investment into the emerging market economies. As financial globalization progressed, presence of international financial intermediaries has expanded considerably. This applies more to international commercial banks than to investment banks, insurance companies and mutual funds. It is incorrect to say that their global expansion has been uniform because this has occurred unevenly. International bond issuance activity by emerging market economies recorded a sharp spurt in 1993. Emerging market economies began using ADRs and GDRs for raising capital from the global capital markets in 1990 in a small way.

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International Financial Competitiveness and Incentives to Foreign Direct Investment

Jahrbücher für Nationalökonomie und Statistik ◽

10.1515/jbnst-2010-0104 ◽

2010 ◽

Vol 230 (1) ◽

Author(s):

Axel Jochem

Keyword(s):

Foreign Direct Investment ◽

Capital Markets ◽

Direct Investment ◽

Financial Integration ◽

Positive Impact ◽

Essential Feature ◽

Real Economy ◽

International Capital ◽

International Capital Markets ◽

Financial Competitiveness

SummaryInternational financial integration has become an important factor for economic performance in the globalisation process. Access to international capital markets is crucial for a country’s ability to meet its financial needs and to keep up with the challenges of a changing global landscape. In this paper, “financial competitiveness” is interpreted as the attractiveness of a country as perceived by foreign investors, which is reflected in refinancing costs in international capital markets. The study concentrates on foreign direct investment (FDI), which is an essential feature of the globalisation process and has immediate implications for the real economy. An index of international financial competitiveness is calculated which is given by the ratio of the market value to the book value of inward FDI stocks. For a panel of five advanced economies from 1980 to 2006 it is shown that price competitiveness, stable inflation rates and registered patents have a positive impact on the index. Institutional factors like EMU membership or Anglo-American legislation also play a role. Financial competitiveness in turn encourages FDI inflows whereas it benefits fixed investment relative to M&A. There is also some evidence that an innovative environment accelerates investment decisions by promoting competition among investors.

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CMU and the Deepening of Financial Integration

10.1093/oso/9780198813392.003.0002 ◽

2018 ◽

Author(s):

Diego Valiante

Keyword(s):

United States ◽

Capital Markets ◽

Economic History ◽

Financial Integration ◽

Significant Risk ◽

The United States ◽

Single Market ◽

Policy Framework ◽

The Eu ◽

European Financial Integration

The integration of capital markets in the EU is a long-term and complex task that is far from being completed. A comparative analysis with capital markets integration and development in the United States can offer insights on how the EU can develop its policy framework to achieve a single market for capital. This chapter begins with a brief review of the history of European financial integration policies since its inception in 1957. It then illustrates how capital markets can provide significant risk absorption against exogenous shocks. Finally, it presents a brief overview of the United States' economic history between 1860s and 1930s. Analogies can be found with the European financial integration process, as well as benchmarks to identify areas where European policies can do more to promote a Single Market for capital.

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Capital Markets Union: A Vision for the Long Term

Journal of Financial Regulation ◽

10.1093/jfr/fjw006 ◽

2016 ◽

Vol 2 (1) ◽

pp. 130-153 ◽

Cited By ~ 18

Author(s):

Nicolas Véron ◽

Guntram B. Wolff

Keyword(s):

Financial Markets ◽

Capital Markets ◽

Financial Stability ◽

Financial Integration ◽

Bank Lending ◽

The European Union ◽

Short Term ◽

Capital Markets Union ◽

Improve Access

Abstract Capital Markets Union (CMU) is a welcome economic policy initiative. If well designed and implemented, it can improve access to funding, the allocation of capital, prospects for savers, and financial stability in the European Union. But since financial ecosystems only change slowly, CMU cannot be a short-term cyclical instrument to substitute for subdued bank lending. Shifting financial intermediation towards capital markets will require persistent action on multiple fronts. The policy agenda should aim to enhance both capital markets development and cross-border financial integration, two distinct but mutually reinforcing aims; to increase the transparency, reliability, and comparability of information, a key enabler of trust in financial markets which always involve information asymmetries; and to adequately address financial stability concerns. We propose a staged process to sustain the momentum and make Europe’s CMU fully worthy of its 'union' label.

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Integration in Central European capital markets in the context of the global COVID-19 pandemic

Equilibrium ◽

10.24136/eq.2020.027 ◽

2020 ◽

Vol 15 (4) ◽

pp. 627-650

Author(s):

Pedro Pardal ◽

Rui Dias ◽

Petr Šuleř ◽

Nuno Teixeira ◽

Tomáš Krulický

Keyword(s):

Capital Markets ◽

Capital Market ◽

Structural Breaks ◽

Financial Integration ◽

Impulse Response Function ◽

Value Added ◽

Unit Roots ◽

Strong Impact ◽

Integration Test ◽

Stock Indexes

Research background: Covid-19 pandemic had a strong impact on the economy and capital market. In times of crisis, it is important for investors to be able to diversify their investment portfolio in order to mitigate risk. However, the growing trend towards capital market integration may make it ineffective. Research on financial integration, during the Covid-19 period, has started to develop, mainly in major global capital markets. It is, therefore, important to extend this research to other capital markets. The purpose of the article: This contribution aims to analyze financial integration in the stock indexes of the capital markets of Austria (ATX), Slovenia (SBITOP), Hungary (BUDAPEST SE), Lithuania (OMX VILNIUS), Poland (WIG), the Czech Republic (PX PRAGUE), Russia (MOEX) and Serbia (BELEX 15), in the context of the global pandemic (COVID-19). Methods: To measure the unit roots in the time series, we used ADF, PP, and KPSS tests, and Clemente et al. (1998) test to detect structural breaks. To ana-lyse financial integration, we applied the Gregory and Hansen integration test, and to validate the robustness of results, we use the impulse-response function (IRF) methodology, with Monte Carlo simulations, as they provide a dynamic analysis generated from the VAR model estimates. Findings & Value added: The results suggest very significant levels of integration, which decreases the chances of portfolio diversification in the long-term. Evidence shows 47 pairs of integrated stock market indexes (out of 56 possible). The stock indexes ATX, BUDAPESTE SE, BELEX 15 show financial integration with all other indexes. On the contrary, the index of OMX VILNIUS shows only 3 integrations. Results also show that most of the significant structural breaks occurred in March 2020. The analysis of the relationship between markets, in the short term, shows positive/negative co-movements, with statis-tical significance and with a persistence longer than one week.

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