Homogeneity of Determinants in the Financial Sector and Investment in EU Countries
Abstract
:1. Introduction
2. Literature Review
3. Data and Methods
- Are homogeneous financial markets and investment activities in the European Union countries that are members of the EMU the same as those that are not members of the EMU?
- Are the European Union’s financial markets and investment activity homogeneous within the Visegrad Group countries?
- Are EU countries different in terms of financial markets and investment activity?
- Does GDP per capita (PPS) depend on the volume of loans to non-financial institutions in the European Union?
- Does GDP per capita (PPS) depend on the volume of investment in the EU countries?
- The status of debt securities (Debt_securities_NEF) held by non-financial corporations.
- Loan status (Debt_NF, debt_C) held by the non-financial corporations and households’ sectors.
- Net flows of debt securities (Credit_flows_securities_NF) to non-financial corporations.
- Net credit flows (Credit_flows_NF, Credit_flows_C) to non-financial businesses and households.
- The development of the sum of all financial sector liabilities (Total_liabilities), which includes currency and deposits, debt securities, loans, equity and investment fund shares, insurance, pension and standardized guarantee schemes, financial derivatives and employee stock options and other liabilities of financial institutions.
- Developments of all liabilities of financial institutions (Liabilities_FI) include money market funds, collective investment funds, financial intermediaries other than insurance corporations and pension funds, auxiliary financial institutions, captive finance institutions and money lenders, insurance companies, and pension funds.
- Development of all central bank liabilities (Liabilities_CB).
- Gross household investment (Investment_C) is defined as gross fixed capital formation divided by gross disposable income adjusted for changes in net equity of households in pension funds reserves. Household investment mainly consists of purchases and renovation of dwellings.
- The rate of gross investment of non-financial corporations (Investment_NF) is defined as gross fixed capital formation divided by gross value added. This ratio relates the investment of non-financial corporations in fixed assets (buildings, machinery, etc.) to the added value generated during the production process.
- The Maastricht long-term interest rate criterion (EMU) is used as a convergence criterion for the European Monetary Union in the area of long-term interest rates (gross government bond yields on the secondary market with an average residual maturity of around 10 years).
- Foreign direct investment (FDI_in) from the international investment category is carried out by a foreign entity (direct investor) purchasing an entity in the domestic economy for the purpose of earning a profit, while a direct investor controls at least 10% of the entity’s capital. For the comparability of economies of different sizes, FDI inward data is expressed as a share of the reporting country’s GDP.
- Foreign direct investment (FDI_out) from the international investment category is made by the domestic entity (direct investor) purchasing an entity in a foreign economy for the purpose of making a profit, while the direct investor controls at least 10% of the foreign entity’s capital. For the comparability of economies of different sizes, FDI outward data is expressed as a share of the reporting country’s GDP.
- The capital account (CA) includes all transactions related to capital transfers and the acquisition or assignment of unproduced non-financial assets. The capital account together with the current and financial accounts form the balance of payments. It is expressed as a percentage of GDP. Financial flows are referred to as credit items, debit items, and balance. This indicator is based on balance of payments data provided to Eurostat by EU Member States.
- International investment position (Balance_portf_I) is a statistical statement showing at some point the value and composition of: financial assets of residents of the given economy, which are claims on non-residents and gold held as reserve assets; financial liabilities of residents of the economy to non-residents. The difference between the foreign financial assets and the liabilities of a given economy can be positive or negative. The indicator is expressed in millions of national currency units and is based on Eurostat’s balance of payments statistics.
- Gross domestic product per capita in purchasing power standard (GDP_capita_PPS) is a measure of economic performance. It represents the added value of all manufactured goods and services. The GDP per capita index expressed in purchasing power standard is in relation to the EU-28 average of 100. If a country-specific index is higher than 100, it means that its GDP per capita is higher than the EU-28 average and vice versa. The figures are given in the purchasing power standard—a common currency which wipes out differences in price levels between countries, allowing a comparison of GDP between countries rather than over time
4. Results
4.1. Correlation Analysis
4.2. Cluster Analysis
- Cluster 1: Germany, Finland, France, the Netherlands, the United Kingdom, Belgium, Austria, Denmark and Sweden;
- Cluster 2: Latvia, Lithuania, Italy, Slovenia, the Czech Republic, Spain, Portugal, Cyprus, Hungary;
- Cluster 3: Luxembourg.
- Cluster 1: Greece, Spain, Malta, the Czech Republic, Lithuania, Italy, Estonia, Poland, Germany, Austria, Romania, Slovenia, Latvia, Hungary, Croatia, Bulgaria;
- Cluster 2: Ireland, Cyprus, Finland, the United Kingdom, France, the Netherlands, Portugal, Belgium, Denmark, Sweden;
- Cluster 3: Luxembourg.
- Cluster 1: Denmark, Austria, Belgium, France, Spain, Sweden, the Czech Republic, Slovakia and Cyprus
- Cluster 2: Latvia, Lithuania and Portugal;
- Cluster 3: Germany, Finland, the Netherlands, Italy, the United Kingdom, Slovenia;
- Cluster 4: Hungary;
- Cluster 5: Luxembourg.
5. Discussion
6. Conclusions
Author Contributions
Acknowledgments
Conflicts of Interest
Appendix A
Country | Debt_NF, % in GDP | Investment_C, % | GDP_capita_PPS, volume index EU28 = 100 | Country | Debt_NF, % in GDP | Investment_C, % | GDP_capita_PPS, volume index EU28 = 100 |
---|---|---|---|---|---|---|---|
Belgium | 112.60 | 10.11 | 117.00 | Luxembourg | 200.70 | 9.99 | 253.00 |
Czech Republic | 31.30 | 9.03 | 89.00 | Hungary | 51.20 | 6.79 | 68.00 |
Denmark | 65.90 | 8.50 | 128.00 | Netherlands | 128.00 | 11.01 | 128.00 |
Germany | 40.90 | 9.70 | 124.00 | Austria | 61.20 | 8.68 | 127.00 |
Estonia | 61.20 | 8.35 | 79.00 | Portugal | 75.70 | 5.16 | 77.00 |
Spain | 75.20 | 5.43 | 92.00 | Slovenia | 46.20 | 6.09 | 85.00 |
France | 61.40 | 9.42 | 104.00 | Slovakia | 47.10 | 7.69 | 76.00 |
Italy | 60.30 | 8.27 | 96.00 | Finland | 65.40 | 11.32 | 109.00 |
Cyprus | 208.30 | 10.22 | 85.00 | Sweden | 85.10 | 6.24 | 121.00 |
Latvia | 60.70 | 4.83 | 67.00 | United Kingdom | 65.90 | 6.29 | 105.00 |
Lithuania | 32.30 | 6.47 | 78.00 |
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Area | Abbreviation | Variable | Unit of Measure |
---|---|---|---|
Financial sector | Debt_securities_NF | Private sector debt: debt securities of non-financial institutions, consolidated | in % GDP |
Debt_NF | Private sector debt: loans to non-financial institutions, consolidated | in % GDP | |
Debt_C | Private sector debt: household loans, consolidated | in % GDP | |
Credit_flow_securities_NF | Credit flow in the private sector: debt securities of non-financial institutions, consolidated | in % GDP | |
Credit_flows_NF | Credit flows in the private sector: loans to non-financial institutions, consolidated | in % GDP | |
Credit_flows_C | Credit flows in the private sector: household credit, consolidated | in % GDP | |
Liabilities_FI | Liabilities of financial institutions, consolidated | in % GDP | |
Liabilities_CB | Central bank liabilities, consolidated | in % GDP | |
Total_liabilities | Total financial sector liabilities, consolidated | in % GDP | |
Investment activity | Investment_C | Household investment rate | % |
Investment_NF | Investment rate of non-financial corporations | % | |
EMU | EMU convergence criteria | % | |
FDI_in | Level of foreign direct investment (FDI) in the given economy | in millions | |
FDI_out | Level of foreign direct investment (FDI) directed out of the given economy | in millions | |
CA | Capital account | in % GDP | |
Balance_portf_I | Portfolio investment balance | in millions | |
GDP_ capita_ PPS | Gross domestic product per capita in purchasing power standard | Volume index, EU28 = 100 |
The Observed Relationship | Indicator 1 | Indicator 2 | Result |
---|---|---|---|
Relationship 1 | Debt_NF | Investment_NF | 0.192943 |
Relationship 2 | Debt_C | Investment_C | 0.351116 |
Relationship 3 | Credit_flows_NF | Investment_NF | −0.01687 |
Relationship 4 | Credit_flows_C | Investment_C | 0.187758 |
Relationship 5 | GDP_capita_PPS | Debt_NF | 0.571182 |
Relationship 6 | GDP_capita_PPS | Debt_C | 0.370495 |
Relationship 7 | GDP_capita_PPS | Investment_NF | 0.005208 |
Relationship 8 | GDP_capita_PPS | Investment_C | 0.462431 |
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Urbankova, E.; Krizek, D. Homogeneity of Determinants in the Financial Sector and Investment in EU Countries. Economies 2020, 8, 14. https://doi.org/10.3390/economies8010014
Urbankova E, Krizek D. Homogeneity of Determinants in the Financial Sector and Investment in EU Countries. Economies. 2020; 8(1):14. https://doi.org/10.3390/economies8010014
Chicago/Turabian StyleUrbankova, Erika, and David Krizek. 2020. "Homogeneity of Determinants in the Financial Sector and Investment in EU Countries" Economies 8, no. 1: 14. https://doi.org/10.3390/economies8010014
APA StyleUrbankova, E., & Krizek, D. (2020). Homogeneity of Determinants in the Financial Sector and Investment in EU Countries. Economies, 8(1), 14. https://doi.org/10.3390/economies8010014