European Financial Integration Affect The Direction Of Cross-border Flows Of Capital - A Trade Perspective

Our paper aims to shed light on the relationship between the financial integration level and the current account balance, especially in European countries. While current account surplus is an indicator of capital outflows, current account deficit is an indicator of capital inflows. From the point of view that the current account balance is an indicator of cross-border capital flows, we attempt to unveil the impact of financial integration on cross-border capital flows. In Europe, while the increase of financial integration level would raise current account surplus in rich countries, the same change will increase current account deficits in poor countries. Thus, with the increase of the financial integration level, the dispersion of current account balance will increase, and the capital movements from rich countries to poor countries can be observed in Europe. However, this effect is not significant at either the global level or the Asia Pacific level.In the end, we will pay attention to whether the increasing financial integration level is benefiting China. With Europe as a good reference, policy recommendations will be given.