Joining a Currency Union to Improve Financial Development and Competitiveness: The Case of Slovakia

Authors

Etsub Tekola Jemberu, Tomas Bata UniversityFollow
Bruce Dehning, Chapman UniversityFollow

Document Type

Article

Publication Date

12-2023

Abstract

Enhancing competitiveness is a priority for nations seeking to promote economic growth. One of the critical drivers of a nation’s sustainable competitiveness is financial system development. However, whether joining a currency union has a positive impact on a country’s financial system development requires further investigation. This study evaluates the impact of euro adoption on Slovakia’s financial system development using a synthetic control method with lasso regularization methodology. A comprehensive index that captures the depth, access, and efficiency of financial institutions and markets is used to measure financial system development. Based on a donor pool composed of non-euro OECD countries, the analysis constructs a synthetic counterfactual of Slovakia’s financial system development had it not adopted the euro in 2009. This enables a comparison between real and synthetic Slovakia. The results show that Slovakia’s transition to the common currency contributed positively to the development of its financial system. The findings show that from 2010 - 2021, Slovakia realized a 19 percent increase in its financial system development relative to the counterfactual after adopting the euro. Robustness checks using a different donor pool and alternative specification with additional covariates produce varied, but still positive, effects confirming the study’s main findings.

Comments

This article was originally published in Journal of Competitiveness, volume 15, issue 4, in 2023. https://doi.org/10.7441/joc.2023.04.12

Recommended Citation

Jemberu, E.T. & Dehning, B. (2023). Joining a currency union to improve financial development and competitiveness: The case of Slovakia. Journal of Competitiveness, 15(4), 233-256. https://doi.org/10.7441/joc.2023.04.12

Peer Reviewed

1

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 License.