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Financial Development and Economic Growth in Transition Economies: Empirical Evidence from the CEE and CIS Countries

Author

Listed:
  • Laura Cojocaru

    (Department of Economics, University of Delaware)

  • Saul Hoffman

    (Department of Economics, University of Delaware)

  • Jeffrey Miller

    (Department of Economics, University of Delaware)

Abstract

We examine the role of financial development in economic growth in the former Communist countries of Central and Eastern Europe and the Commonwealth of Independent States during the first two decades since the beginning of transition. These countries, which had undeveloped financial systems under Communism, provide an interesting test of the relationship between financial development and growth. We show that credit to the private sector had a positive effect on growth in these countries; however, high levels of inflation can render the positive effect of private credit insignificant. High interest rate spreads and reduced banking competition hampered economic growth.

Suggested Citation

  • Laura Cojocaru & Saul Hoffman & Jeffrey Miller, 2011. "Financial Development and Economic Growth in Transition Economies: Empirical Evidence from the CEE and CIS Countries," Working Papers 11-22, University of Delaware, Department of Economics.
    • Handle: RePEc:dlw:wpaper:11-22.
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    References listed on IDEAS

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    2. Huy Tiet Pham & Christopher Gan & Baiding Hu, 2022. "Causality between Financial Development and Foreign Direct Investment in Asian Developing Countries," JRFM, MDPI, vol. 15(5), pages 1-26, April.
    3. Dan Costin Nitescu & Valentin Murgu, 2019. "The Economic Growth Catalyzers at the European Level, in the Context of the 2008 Financial Crisis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 21(50), pages 241-241, February.
    4. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    5. Saša Obradović & Milka Grbić, 2015. "Causality Relationship between Financial Intermediation by Banks and Economic Growth: Evidence from Serbia," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(1), pages 60-72.
    6. Zeeshan Atiq & M. Emranul Haque, 2015. "Financial Development and Economic Growth: The Role of Financial Liberalization," Centre for Growth and Business Cycle Research Discussion Paper Series 201, Economics, The University of Manchester.
    7. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
    8. Akech David Akuien, 2023. "The importance of Banking sector in the growth of Nation economy: A case study of Stanbic bank in South Sudan," International Journal of Science and Business, IJSAB International, vol. 28(1), pages 1-20.

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    More about this item

    Keywords

    transition economies; CEE; CIS; financial sector development; economic growth; panel data;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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