Developments, Trends and Features of Financial Integration in the Western Balkan Region - Cross-Country Comparisons

This paper looks at the key trends of financial integration and analyzes the degree to which Western Balkan countries are internationally integrated in financial flows. With the aim of reviewing the development of financial integration in the region some the experience of Western Balkan regions will be examined by conducting cross-country comparisons. The analysis focuses on the Western Balkans region by examining a set of financial indicators, but it will be useful to see the comparative view to the European perspective (EU 3 countries). To the purpose of cross country comparison, several important financial integration indicators related to financial openness and financial deepening are considered. The data for eight transition countries was sourced from the World Bank - World Development Indicators, IFS (International Financial Statistics), and WEO. For needs of the size and composition of capital inflows countries of the Western Balkan and EU 3 countries data are drawn from balance of payment selected countries. The paper provides two key insights. First, the financial systems in sample of analyzing countries are still at an earlier stage. Second, the median volatility of Portfolio investments (as % of GDP) is shown substantially less than the median volatility of Loanto-GDP ratio and median volatility of FDI flows-to-GDP ratio. Also, the coefficient of variation for the Western Balkan region as well as EU3 countries reveals that the Loanto-GDP ratio is less volatile than the FDI inflows to GDP ratio