IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Financial development and economic growth in transition economies A survey of the theoretical and empirical literature

  • R.T.A. de Haas
Registered author(s):

    Asymmetric information and transaction costs play a central role in the economic literature explaining the importance of financial intermediaries and financial markets for economic growth. Such market imperfections are especially relevant for the countries in Central- and Eastern Europe (CEE), where well-functioning markets and legal institutions are often absent and economic uncertainty is high. As a result, information asymmetries between banks on the one hand and small and medium-sized firms on the other are large, just as the external financing premium these firms are faced with. Also, in many countries, the banking sector is still in the middle of a process of privatisation, while at the same time financial markets are only in their infancy. Furthermore, the lack of adequate "rules of the game" is reflected in perverse incentives such as soft budget constraints for (former) state-owned firms. When firms default, banks are often not inclined to institute bankruptcy proceedings against them. To a large extent, this is the direct result of a lack of effective bankruptcy laws and the absence of collateral. When banks cannot credibly commit not to refinance bankrupt firms, moral hazard behaviour by firm managers will develop. As a result, the allocative function of financial intermediaries will be distorted, as financial funds will flow to loss-making, large (state-owned) firms, while at the same time small and medium-sized firms will fully depend on their internally generated funds to finance investments. The still deficient institutional set-up, as well as the (in certain aspects) poorly functioning financial systems in CEE, may thus hinder economic growth by allocating financial resources to the "wrong" enterprises.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.dnb.nl/en/binaries/ot035_tcm47-146048.pdf
    Download Restriction: no

    Paper provided by Netherlands Central Bank, Directorate Supervision in its series Research Series Supervision (discontinued) with number 35.

    as
    in new window

    Length:
    Date of creation: Jan 2001
    Date of revision:
    Handle: RePEc:dnb:ressup:35
    Contact details of provider: Postal:
    Postbus 98, 1000 AB Amsterdam

    Web page: http://www.dnb.nl/en/

    More information through EDIRC

    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.:

    as in new window
    1. Carlin, Wendy & Richthofen, Peter, 1995. "Finance, economic development and the transition: the East German case," Discussion Papers, Research Unit: Economic Change and Employment FS I 95-301, Social Science Research Center Berlin (WZB).
    2. Berglof, Erik & Roland, Gerard, 1997. "Soft budget constraints and credit crunches in financial transition," European Economic Review, Elsevier, vol. 41(3-5), pages 807-817, April.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
    4. Hermes, Niels & Lensink, Robert, 2000. "Financial system development in transition economies," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 507-524, April.
    5. Thorsten Beck & Ross Levine & Norman Loayza, 1999. "Financial Intermediation and Growth: Causality and Causes," Working Papers Central Bank of Chile 56, Central Bank of Chile.
    6. Marco Becht & Colin Mayer, 2001. "Introduction," ULB Institutional Repository 2013/13332, ULB -- Universite Libre de Bruxelles.
    7. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," World Bank Economic Review, World Bank Group, vol. 10(2), pages 223-39, May.
    8. Douglass C. North, 1993. "The New Institutional Economics and Development," Economic History 9309002, EconWPA.
    9. Guillermo A. Calvo & Fabrizio Coricelli, 1993. "Output Collapse in Eastern Europe: The Role of Credit," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 32-52, March.
    10. Janet Mitchell, 2000. "Theories of Soft Budget Constraints and the Analysis of Banking Crises," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 59-100, March.
    11. Claessens, Stijn & Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "How does foreign entry affect the domestic banking market?," Policy Research Working Paper Series 1918, The World Bank.
    12. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
    13. B. Gerard Dages & Linda S. Goldberg & Daniel Kinney, 2000. "Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 17-36.
    14. Mathias Dewatripont & Eric Maskin, 1995. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9603, ULB -- Universite Libre de Bruxelles.
    15. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    16. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
    17. John P Bonin, 1993. "On the Way to Privatizing Commercial Banks: Poland and Hungary Take Different Roads," Comparative Economic Studies, Palgrave Macmillan, vol. 35(4), pages 103-119, December.
    18. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
    19. Frederic S. Mishkin, 1991. "Anatomy of a Financial Crisis," NBER Working Papers 3934, National Bureau of Economic Research, Inc.
    20. Brunetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1998. "Credibility of Rules and Economic Growth: Evidence from a Worldwide Survey of the Private Sector," World Bank Economic Review, World Bank Group, vol. 12(3), pages 353-84, September.
    21. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
    22. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    23. Perotti, E. C., 1998. "Inertial credit and opportunistic arrears in transition," European Economic Review, Elsevier, vol. 42(9), pages 1703-1725, November.
    24. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
    25. Ross Levine, 1998. "The legal environment, banks, and long-run economic growth," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 596-620.
    26. Stanley Fischer & Alan Gelb, 1991. "The Process of Socialist Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 91-105, Fall.
    27. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    28. M. Dewatripont & E. Maskin, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 541-555.
    29. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    30. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    31. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:dnb:ressup:35. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.