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

  • Laura Cojocaru

    ()

    (Department of Economics, University of Delaware)

  • Saul Hoffman

    ()

    (Department of Economics, University of Delaware)

  • Jeffrey Miller

    ()

    (Department of Economics, University of Delaware)

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.

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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2011/UDWP2011-22.pdf
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Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 11-22.

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Length: 32 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:dlw:wpaper:11-22.
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Web page: http://www.lerner.udel.edu/departments/economics/department-economics/

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  1. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  2. Bonin, John & Hasan, Iftekhar & Wachtel , Paul, 2014. "Banking in transition countries," BOFIT Discussion Papers 8/2014, Bank of Finland, Institute for Economies in Transition.
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  10. Rousseau, Peter L. & Wachtel, Paul, 2005. "Economic Growth and Financial Depth: Is the Relationship Extinct Already?," Working Paper Series DP2005/10, World Institute for Development Economic Research (UNU-WIDER).
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  14. Neven Valev & Felix Rioja, 2002. "Finance and the Sources of Growth at Various Stages of Economic Development," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0217, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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  17. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
  18. Nicola Cetorelli & Michele Gambera, 1999. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Center for Financial Institutions Working Papers 00-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
  19. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  22. R.T.A. de Haas, 2001. "Financial development and economic growth in transition economies A survey of the theoretical and empirical literature," Research Series Supervision (discontinued) 35, Netherlands Central Bank, Directorate Supervision.
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