Homogeneity of Determinants in the Financial Sector and Investment in EU Countries
Round 1
Reviewer 1 Report
The paper has improved. In the introduction the research question is clearly stated as well as why it is relevant for the euro area. In the introduction there should be also a preview of results. The Conclusion session also improves the paper by discussing results and future research.
However, I am still sceptical about the contribution to the literature and on the way the authors comment the correlations. On the first point, the literature review does not clearly explain in what the research proposed in the paper is new and providing a contribution with respect to the previous literature. On the second point, the authors state that "correlation is not causality", this is correct, but then when they explain their regression they describe a casual relationship (comments both under equation 4 and 5), and this is wrong.
Finally some parts of the paper are still not clear and not well written.
Author Response
Response to Reviewer 1 Comments
Point 1: In the introduction there should be also a preview of results.
Response 1: The following sentences summarizing the results of our paper have been added to the Introduction section.
"We managed to prove the existence of persistent differences between the developed EU countries in terms of GDP and the rest, southern and eastern EU Member States. Euroarena thus does not contribute to greater integration in terms of financial markets. The situation is different in terms of investment activity. Here already homogeneous groups within the group are more diversified not only in terms of economic development but also geographical location. Thus, it can be stated that partial integration within the EU is therefore taking place in terms of financial markets. However, it is still not satisfactory."
Point 2: I am still sceptical about the contribution to the literature.
Response 2: The following section will be added to the literature review. We hope that we have succeeded in describing the scientific research gap that we are trying to fill.
Since the collapse of the Bretton Woods system in the early 1970s, there has been a significant development of financial markets and with it globalization of the entire world financial system based on deregulated markets. Alongside this, the key issues related to nation states arose, especially in terms of its ability to continue to manage its economic policies, which impact directly or as externalities on financial markets. For example, Cerny (1994), who, after briefly exploring the different approaches to the financial globalization process itself, identifies the limitations of possible policy interventions, has been dealing with this issue in detail, while others report instability directly (Thompson, 2017; Lin, 2014). However, due to economies of scale and reduced transaction costs, further technological developments are taking place. Despite these findings, the nation states themselves continued to support the integration and globalization of financial markets, in particular (1) granting freedom to market actors through liberalization initiatives; (2) preventing major international financial crises; and (3) choosing not to implement more effective controls on financial movements (Helleiner, 1995). However, this is changing as a result of the financial crisis and subsequent economic crisis, which not only nation states but also the European Commission again seeks greater efficiency interventions regulatory and supervisory authorities (Helleiner, 2018; Underhill, 2015). However, this may run counter to negative externalities or ultimately impact differently on EU Member States with varying effects if Member States' financial markets are not very close. Critical examination of the process of integration of financial markets within the EU is therefore more necessary than ever. We have identified a fundamental lack of professional debate concerning the evaluation of homogeneity of EU financial markets and ignoring the potential heterogeneity of financial markets within the EU. This is all the more problematic in case of decline in the economic cycle can then in various homogeneous groups composed of national financial markets affect the impact of policies with different force and effect and is thus necessary to seek further potential for better monitoring and management of highly interconnected economic and financial systems and, thus, may help anticipate and manage future crises (Battiston, 2016). However, we cannot study asymmetries and structures, such as Battiston (2016) among homogeneous groups, unless their substance is clear and on what indicator they are formed. One of our assumptions is that it has a positive effect on the homogeneity of financial markets when a state is a member of a monetary union, ie the euro area.
(Cerny, 1994) Cerny, Philip G. 1994. The Dynamics of Financial Globalization: Technology, Market Structure, and Policy Response. Policy Sciences 27(4): 319-342.
(Helleiner, 1995) Helleiner, E. 1995. Explaining the globalization of financial markets: Bringing states back in. Review of International Political Economy 2(2): 315-341.
(Thompson, 2017) Thompson, G. H. 2017. Time, trading and algorithms in financial sector stability. New Political Economy 22(1): 1–11.
(Lin, 2014) Lin, T. C. W. 2014. The new financial industry. Alabama Law Review 65(3): 567–623.
(Helleiner et al. 2018) Helleiner, E., Pagliari, S., and Spagna, I. (Eds.). 2018. Governing the world’s biggest market: The politics of derivatives regulation after the 2008 crisis. Oxford: Oxford University Press.
(Underhill, 2015) Underhill, G. R. 2015. The emerging post-crisis financial architecture: The path-dependency of ideational adverse selection. The British Journal of Politics and International Relations 17(3): 461–493.
(Cartlidge and Cliff, 2018) Cartlidge, J., and Cliff, D. 2018. Modelling Complex Financial Markets Using Real-Time Human–Agent Trading Experiments. Complex Systems Modeling and Simulation in Economics and Finance, 35-69.
(Battiston et. al, 2016) Battiston, S., Farmer, J., Flache, A., Garlaschelli, D., Haldane, A., Heesterbeek, H., Hommes, C., Jaeger, C., May, R., and Scheffer, M. 2016. Complexity theory and financial regulation. Science 351(6275): 818-819.
Point 3: I am still sceptical about the way the authors comment the correlations.
Response 2: In the case of correlation, but also of regression analysis, we observe mutual dependence, but we do not say and we do not aim to determine how causality is managed. However, the point is at least we suggest what the relationship might look like. Which we try to show on the basis of regression analysis and say that one phenomenon condition another phenomenon only with a certain probability and in different intensity, which we do not investigate and are certainly suitable topics for further research. And regression examines the relationship between one dependent variable and one or more independent variables, and our goal is to facilitate understanding of that relationship. A number of different values of a second quantity correspond to a certain value of one quantity. This dependence can be characterized by the theoretical course of dependence and possibly its tightness.
Reviewer 2 Report
I’ve carefully read the cover letter and the revised paper. I thank the Authors for the work on the paper and the answers provided to my comments. There is a visible improvement and the paper has been updated in terms of clarity and research quality. The major weaknesses of the paper have been somewhat remedied. The paper is not perfect, but now in a form acceptable for publication.
As a further small improvement, I would suggest to add one sentence of conclusions to the abstract, so that its reader will get to know the main results of Authors’ research, this is now missing.
Author Response
We thank the opponent for valuable comments in the previous round. He currently has no comments. The following sentences have been added to the abstract:
"The results show that in terms of financial markets, there is still a difference between developed countries in terms of GDP and the rest of the EU Member States. However, in the case of investment activity that is no longer. Partial integration therefore takes place within the EU, in terms of financial markets."
Round 2
Reviewer 1 Report
The authors have done a good job in addressing my comments and re-focus the paper.
