Marijana  ĆURAK
Doç. Dr. Marijana ĆURAK
Split Üniversitesi, Hırvatistan
Release Date : 7/9/2014
  1. Introduction
Financial integration considered as a process of individual country’s linkages to international financial markets, and financial globalization defined as a process through which international capital flows increase and financial markets in various economies converge in terms of equalization of prices and returns of financial instruments, have been one of the main characteristics of financial world during the last few decades. The process of financial integration has opportunity to affect financial development and growth of the economies. However, the benefits do not come without threats to the financial systems and the real economies. This was recently evident through the last financial crisis.
In order to get the opportunities for benefits of financial integration, the Balkan countries have made efforts in liberalization as important prerequisite of financial integration. Actually, financial liberalization is one of the key elements of financial reforms that have occurred during the last two decades, although the countries are at different stages of the processes. The efforts are mainly motivated by accession to the European Union. The main form of the financial integration is foreign direct investments of banks from the European Union, realized mainly through privatization of state-owned banks.
The aim of this paper is to provide key considerations on benefits and costs of financial integration for financial development and economic growth, and suggestions aimed at possible types of regional financial cooperation among Western Balkans.
The paper is structured as follows. The Section 2 deals with theoretical considerations of financial integration. Main characteristics of financial systems of Western Balkans countries are described in Section 3. Considerations of transmission of the EU crisis follow in Section 4 while Section 5 analyses possible forms of financial cooperation among Western Balkan countries. Section 6 concludes.
  1. Theoretical Considerations of Financial Integration
Based on the theory, financial integration could produce positive effect on economic growth of recipient country, mainly through improved access to financing domestic investment. However, according to Kose et al. (2006) although the financial integration could produce direct effects on the economic growth, indirect benefits may be even more important. They include financial market development, institutional development, better governance and macroeconomic discipline. Based on empirical results of De Gregorio (1999) financial integration does not affect economic growth directly but indirectly, through fostering financial development. Consequently, this part of the work is focused on the effects of financial integration on growth through the channel of financial development (Figure 1). 
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