Thesis title: Finance and growth: patterns of cross-country convergence
We analyze distance across EU countries in sectoral productivity over 1995-2018 to detect whether the convergence pattern at the aggregate level reflects structural asymmetries in countries’ sectoral specialization. We find that countries’ participation in the upstream or downstream productions at industry level determines cross-country differences in the value added generated and affects the divergence in total economies’ long-run productivity growth. We then analyze income convergence among EU countries over 1995-2017 and compare it with the convergence patterns of the financial systems. We benchmark financial markets and institutions separately. Our analysis shows a high association between the financial clusters and the real income convergence clubs. We also find that, overall, market-oriented economies approach higher long-run growth paths. We enlarge our perspective looking at the finance-growth relationship for a larger panel of countries, over 1960-2017. We first identify clustered patterns of growth, and then test nonlinearities in the finance-growth nexus, on the basis of our convergence results. We find different marginal effects of finance on growth: negative for financially mature economies, positive and large for economies in successful catching up, and limited for low-growth countries. We then introduce a novel measure of financial development to enrich our analysis and build an index of resilient financial development. Our analysis, that covers the aftermath of the global financial crisis highlights a significant fragmentation across EU financial systems, in terms of both financial resilience and development. Our analysis also shows the significant role of financial resilience on growth.