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Legal Harmonization, Institutional Quality, and Countries’ External Positions: A Sectoral Analysis

Aufsätze referiert extern - Web of Science

Franziska Bremus, Tatsiana Kliatskova

In: Journal of International Money and Finance 107 (2020), 102217, 19 S.


Motivated by the action plan for a European capital markets union (CMU), this paper analyzes the potential for legal harmonization and convergence in institutional quality to affect capital market integration. Based on hand-collected data on the implementation of EU-directives, our analysis yields three key insights. First, legal harmonization promotes portfolio equity holdings. Second, discrepancies in institutional quality matter primarily for cross-border debt positions. Third, the relationship between external investments and harmonization varies significantly across sectors: the non-bank financial corporations, which account for a large share of portfolio positions, react more to institutional harmonization than do banks and the non-financial private sector.

Franziska Bremus

Research Associate in the Macroeconomics Department

Topics: Europe

JEL-Classification: E02;F21;G15
Keywords: capital market integration, legal harmonization, sectoral effects
Frei zugängliche Version: (econstor)