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Financialization: curse or salvation? The case of Latvia, a small and post-transition economy

Author

Listed:
  • Joanna Stawska

    (University of Lodz, Poland)

  • Ramona Rupeika-Apoga

    (University of Latvia, Latvia)

  • Maciej Malaczewski

    (University of Lodz, Poland)

  • Iwona Dorota Czechowska

    (University of Lodz, Poland)

  • Fatima Sol Murta

    (University of Coimbra, Portugal)

Abstract

The role of financial sector has increased significantly since the 1980s, introducing a new term or phenomenon i.e. the financialization of the economy. There is still some imprecision about the nature and dynamics of financialization, including its impact on the economy. The main task of the financial sector is to allocate funds for its most productive use, while ensuring sustainable development. Recent studies show that excessive financial deepening negatively impacts the economies of developed countries, but is this true for posttransition economies? The aim of this paper is to look into the relationship between financialization and the state of a small and posttransition economy, the Latvian economy. Using a European database and methodological framework we analyze this relationship in Latvia between 1999Q1 and 2017Q4. In our study, we apply the standard Vector Auto-Regressive model (VAR). Our research results do not indicate that financialization causes significant changes in the state of the Latvian economy. The interpretation of this result is related to the degree of financial deepening in Latvia.

Suggested Citation

  • Joanna Stawska & Ramona Rupeika-Apoga & Maciej Malaczewski & Iwona Dorota Czechowska & Fatima Sol Murta, 2022. "Financialization: curse or salvation? The case of Latvia, a small and post-transition economy," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(3), pages 173-197, March.
    • Handle: RePEc:ssi:jouesi:v:9:y:2022:i:3:p:173-197
    DOI: 10.9770/jesi.2022.9.3(11)
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    More about this item

    Keywords

    financialization; post-transition economy; sustainable development; small and open economy; economic policy;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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