Abstract In this paper, we analyze the evolution of financial development through a club convergence approach. The study covers the EU27 countries between 1993 and 2021. Specifically, we assess the data from the International Monetary Fund, the Financial Development Index (FDI), and its two main components: the Financial Institutions Index (FII) and the Financial Markets Index (FMI). The club convergence procedure leads to full convergence in the FII and three clubs both in the FDI and the FMI. Additionally, this paper analyzes the effect of the Great Recession and finds that it negatively affects the process of convergence. In the second stage, the determining factors of the clusters are studied via an ordered logit model. The results show the ability of GDP per capita to explain club membership in both cases, whereas economic openness, human capital, the informal economy, and public sector size are significant in only one case. Finally, in terms of policy implications, the findings suggest improving financial integration by adopting policies that mitigate financial risk across member countries. Policies that could be implemented in the near future include the establishment of the Banking Union and the Capital Markets Union, as well as improving the regulatory framework to reduce the likelihood of future crises.
Apergis et al. (Thu,) studied this question.