FINANCIAL INTEGRATION AND FINANCIAL CONTAGION. A PROBLEM FOR FINANCIAL STABILITY?

The aim of this paper is to highlight the relation between financial integration and financial contagion, with the desire of financial stability. For this purpose we reviewed the literature in this field and then we did an analysis in order to draw relevant conclusions and to provide a clearer picture of the relationship between the two phenomena. For our analysis, we retrieved data from the Eurostat and World Development Indicators (World Bank) including the EU 28 member states over the time span 2000-2014. Our results show that is a significant relationship between the variables considered, and also financial integration and financial contagion are inversely proportional, financial contagion having a negative influence on the financial integration. It is consensual that a higher level of financial integration in partner economies can promote a process of strengthening the domestic markets involved, which is essential for the domestic corporate environment and also contributes to capital accumulation and technological innovation, key elements for economic growth, and the crisis contagion poses a systemic threat to the stability of the global financial system. For these reasons, studies about financial integration and contagion are relevant.