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Development of Financial Systems in 1995–2014: A Factor Analysis

In: Contemporary Trends and Challenges in Finance

Author

Listed:
  • Małgorzata Iwanicz-Drozdowska

    (Warsaw School of Economics, Institute of Finance)

  • Paweł Smaga

    (Warsaw School of Economics, Institute of Finance
    National Bank of Poland)

Abstract

The aim of the research was to analyze financial system development patterns for both 19 post-communist and 21 non-post-communist counties over the 1995–2014 period. The use of a factor analysis allowed us to identify two unobservable factors. Those factors account for most of the variance of the nine observed variables characteristic of the economic and financial development, the banking sector’s financial position and the structure of the financial sector. We manage to identify factors representing variables correlated with financial system development and growth of the banking sector, but factors’ roles differ among the analyzed groups of countries. The development of the banking sector is significantly associated with the economic development in both groups. Yet, in advanced economies some importance might be also attached to the stock market, which is not the case for post-communist countries. The results show that there is higher homogeneity in the financial system development patterns in post-communist countries, while the roles of both factors are more heterogeneous among advanced economies. Lastly, we provide evidence that the global financial crisis did not cause a permanent structural change in the correlation patterns of variables associated with both factors.

Suggested Citation

  • Małgorzata Iwanicz-Drozdowska & Paweł Smaga, 2017. "Development of Financial Systems in 1995–2014: A Factor Analysis," Springer Proceedings in Business and Economics, in: Krzysztof Jajuga & Lucjan T. Orlowski & Karsten Staehr (ed.), Contemporary Trends and Challenges in Finance, pages 125-134, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-54885-2_12
    DOI: 10.1007/978-3-319-54885-2_12
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