Financial Harmonization and Industrial Growth

Financial Harmonization and Industrial Growth : Evidence from the European Union

This study analyzes the growth effects of the Financial Services Action Plan of the European Commission, a set of directives that aim to harmonize European financial markets. Using a panel of 25 countries and 30 industries, we find that the standard specification predicts lower growth due to harmonization, though the negative effect is mitigated for industries that depend more on external finance. Controlling for the relative timing of the adoption, harmonization is shown to have a positive effect on growth. This finding is robust to including further controls, to splitting the sample into subgroups of countries, and to extending the model to a dynamic setting.