The Shrinkage after the Enlargement? The Effect of Financial Crises and Enlargement on Stock Market Integration in the Euro Area

Abstract

The bilateral foreign portfolio equities among Euro area members have shrunk by 40 percent after 2007. While both the financial crisis and the enlargement are potentially responsible of this abrupt and persistent contraction in financial integration, our work detects a major role for the crisis. The deterioration of the control of corruption mechanisms in Euro periphery economies occurred during the crisis is identified as a plausible driver of this shrinkage.