Financial Integration and Capital Accumulation in the Franc Zone

Abstract

This paper provides original econometric evidence on whether financial integration stimulates capital accumulation based on data for a sample of 15 Franc area countries over the period 1996-2018. Using the system generalized method of moments, the FMOLS cointegration approach, two main results are found. First, financial integration contributes to capital accumulation in Franc area countries. Second, the effects differ according to the indicators of financial integration. Thus, the Lane and Milesi-Ferretti index reports a higher effect of financial integration on capital accumulation, then comes FDI and finally remittances from migrants over the long run. Our findings suggest that the effect of financial integration on accumulation depends on the indicator used and integration into international financial markets significantly increases the capital stock.