Balkan Countries: Catching Up and Their Integration in the European Financial System

This paper aims to show the impact of financial variables on the process of convergence between selected European Union and Balkan countries. Indeed, after a delay in the realization of structural changes – result of historical legacy and circumstances in which the transition process took place – Balkan countries started at the end of 1990s essential reforms in their financial systems with the adoption of concrete measures directed towards the growth and increase of the financial sector efficiency. So, using panel data over the period 1999-2007 for a sample of 21 countries, we test the convergence’s hypothesis by the Bayesian iterative estimation method; two financial variables are introduced to control the differences in steady state. Our empirical results sustain the importance of the domestic credit and the market capitalization in the catching-up process by a significant increase in the speed of convergence.