Stojkov, AleksandarZalduendo, Juan2012-03-192012-03-192011-10-01https://hdl.handle.net/10986/3604This paper provides empirical evidence that countries in emerging Europe reaped the benefits of international financial integration over the past 12 years by attracting sizeable foreign capital inflows and accelerating medium-term growth. But the aggregate pattern masks substantial heterogeneity across countries; namely, new European Union member states and the European Union candidate countries are different from the European Union neighborhood. The growth benefits are supported from both a flow and a stock perspective in terms of the link between foreign savings and growth. While foreign savings might in part substitute for national savings, the analysis finds that the channel to high growth in these countries is, primarily, through making possible the pursuit of investment opportunities that would otherwise remain unfunded; in turn, this seems to be intimately linked to the opportunities created by European Union membership. Although this conclusion does not disappear if the outlier observations of the credit boom period that preceded the financial crisis are dropped from the sample, it does suggest that these excesses did not play as positive a role for growth.CC BY 3.0 IGOABSOLUTE VALUEABSORPTIVE CAPACITYACCESSION COUNTRIESADVANCED ECONOMIESANNUAL GROWTHANNUAL GROWTH RATEASSETSAVERAGE GROWTHAVERAGE GROWTH RATEBALANCE OF PAYMENTSBANKING SYSTEMBENCHMARKBUSINESS CYCLECAPITAL ACCOUNTCAPITAL ACCOUNT RESTRICTIONSCAPITAL ACCOUNT TRANSACTIONSCAPITAL CONTROLSCAPITAL FLOWCAPITAL FLOWSCAPITAL FORMATIONCAPITAL GOODSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL MOBILITYCAPITAL STOCKCENTRAL PLANNINGCOLLATERALCONSUMER CHOICECONSUMPTION SMOOTHINGCONTROL VARIABLESCONVERGENCE HYPOTHESISCOUNTRY DUMMYCREDIT BOOMCURRENCYCURRENCY CRISESCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT BALANCESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT POSITIONSCURRENT ACCOUNT SURPLUSESCURRENT ACCOUNT TRANSACTIONSDEBTDEPENDENCY RATIODEPENDENT VARIABLEDEPOSITSDEPRECIATIONDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDISTORTIONSDOMESTIC BANKSDOMESTIC FINANCIAL SECTORDOMESTIC SAVINGDOMESTIC SAVINGSDUMMY VARIABLEDUMMY VARIABLESDYNAMIC PANELECONOMETRIC ANALYSISECONOMETRICSECONOMIC GROWTHECONOMIC HISTORYECONOMIC INTEGRATIONECONOMIC MODELECONOMIC POLICYECONOMIC REFORMSECONOMIC RESEARCHECONOMIC THEORYECONOMICSEDUCATIONAL ATTAINMENTEMPIRICAL EVIDENCEEMPIRICAL LITERATUREEMPIRICAL RESULTSEMPIRICAL STUDIESEMPIRICAL WORKENDOGENOUS GROWTH THEORIESENDOGENOUS VARIABLESEQUATIONSERROR TERMERROR TERMSESTIMATED COEFFICIENTESTIMATED COEFFICIENTSESTIMATION RESULTSEXCHANGE ARRANGEMENTSEXCHANGE RATESEXCHANGE RESTRICTIONSEXPLANATORY VARIABLEEXPLANATORY VARIABLESEXPORTSEXPOSUREEXPOSURESEXTERNAL FINANCINGEXTERNAL IMBALANCESFINANCIAL ASSETSFINANCIAL CRISISFINANCIAL DEPTHFINANCIAL DEVELOPMENTFINANCIAL INTERMEDIATIONFINANCIAL LIBERALIZATIONFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL SECTORFOREIGN ASSETFOREIGN ASSET POSITIONFOREIGN ASSET POSITIONSFOREIGN ASSETSFOREIGN CAPITALFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESFOREIGN LIABILITIESGDP DEFLATORGDP PER CAPITAGENERAL EQUILIBRIUMGLOBAL ECONOMYGLOBAL IMBALANCESGLOBALIZATIONGRADUAL CAPITAL ACCOUNT LIBERALIZATIONGROSS CAPITAL FORMATIONGROWTH DETERMINANTSGROWTH EQUATIONGROWTH IMPACTGROWTH LITERATUREGROWTH MODELGROWTH MODELSGROWTH PERFORMANCEGROWTH PROCESSGROWTH RATEGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSGROWTH THEORIESGROWTH THEORYHIGH GROWTHHUMAN CAPITALIMBALANCEIMBALANCESIMPORTSINCOMEINDICATOR VARIABLEINFLATIONINFLATION RATEINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL TRADEINVESTMENT DEMANDINVESTMENT OPPORTUNITIESINVESTMENT RATESLAGGED DEPENDENTLEVEL OF INVESTMENTLONG RUNLONG-RUN GROWTHLOW-INCOME COUNTRIESWorld Bank10.1596/1813-9450-5837