The convergence process and the volatility of the money and capital markets

Abstract

This study investigates the degree of economic integration between Cyprus and the ten new accession countries and the European Union by using advanced econometric techniques. More specifically, the analysis looks at the financial and economic convergence between the above mentioned groups of countries. With respect to the financial convergence, we examine convergence by looking at Bond returns and the capitalization-to-GDP ratio. With respect to economic (real) convergence we examine the per capita GDP. Our results show that Cyprus does not show any degree of convergence when taking into account the capitalization-to-GDP ratio. Of course, this is a general phenomenon, in the sense that we find no convergence, even with respect to the old member states. As far as bond returns are concerned, we do find some partial convergence between Cyprus and the other groups of countries examined. Looking at the per-capita GDP, the results are also disappointing in the sense that again we find no proof of any convergence between the countries involved. In the light of the above mentioned results, one should expect the European Union to take additional measures in order to achieve faster integration (financial and real) between member states. © Springer International Publishing Switzerland 2016.