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Financial System Development, Regulation and Economic Growth: Evidence from Russia

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Ulrich Thießen

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Abstract

Recent contributions to the empirical analysis of the relationship between financial system development and economic growth found that an exogenous component of financial system development causes economic growth, is a good predictor of growth and that its growth impact is relatively large. In addition, the empirical literature on banking crises predicts that their adverse effects on economic growth will rise in the absence of an adequate response by the government. Given these findings and considering that the Russian government failed to respond adequately to the 1998 banking crisis, Russia’s strong economic growth since the crisis is a puzzle. The paper attempts to analyze Russia’s growth process and to empirically make visible the impact of the banking crisis. It is found that the growth costs of the crisis may have been even larger than suggested by a simulation that uses growth coefficients from the literature. This adverse growth impact was compensated by other expansionary effects. The finding corroborates those studies that argue for the importance of financial system development in promoting growth in transition countries.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41227.de/dp400.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 400.

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Length: 36 p.
Date of creation: 2004
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Handle: RePEc:diw:diwwpp:dp400

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Related research
Keywords: Financial system stability; Economic growth; Banking crisis;

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Cheryl W. Gray & Arnold Holle, 1997. "Bank-led restructuring in Poland (II): bankruptcy and its alternatives," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(1), pages 25-44, 05. [Downloadable!] (restricted)
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  6. Asli Demirguc-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation," Econometric Society World Congress 2000 Contributed Papers 1751, Econometric Society. [Downloadable!]
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  7. Nouriel Roubini & Paul Wachtel, 1998. "Current Account Sustainability in Transition Economies," NBER Working Papers 6468, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Paul Welfens, 1999. "Overcoming the Russian transformation crisis," Intereconomics: Review of European Economic Policy, Springer, vol. 34(3), pages 144-151, May. [Downloadable!] (restricted)
  9. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August. [Downloadable!] (restricted)
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  10. Steinherr, Alfred, 1997. "Banking Reforms in Eastern European Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 13(2), pages 106-25, Summer.
  11. Rudi Dornbusch, 2001. "A Primer on Emerging Market Crises," NBER Working Papers 8326, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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