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Inflation, Financial Development and Growth in Transition Countries

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  • Max Gillman
  • Mark N. Harris

    ()

Abstract

The paper presents panel data evidence for 13 transition countries on inflation, financial development and growth. It contributes to the growth literature by showing that the transition countries conform to developed country evidence in particular with the strong negative effect of inflation on growth. It also contributes more evidence to the debate on the role of financial development. Once inflation and the investment rate are included in the model, a key measure of financial development no longer has a positive effect on growth, as some recent literature has found.

Suggested Citation

  • Max Gillman & Mark N. Harris, 2004. "Inflation, Financial Development and Growth in Transition Countries," Monash Econometrics and Business Statistics Working Papers 23/04, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2004-23
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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp23-04.pdf
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    References listed on IDEAS

    as
    1. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 2001. "Does inflation matter for growth?," Japan and the World Economy, Elsevier, vol. 13(4), pages 405-428, December.
    2. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, vol. 29(1), pages 149-167, January.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    4. Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, vol. 2(1), pages 117-138, April.
    5. P. J. Dawson, 2003. "Financial development and growth in economies in transition," Applied Economics Letters, Taylor & Francis Journals, vol. 10(13), pages 833-836.
    6. Levine, Ross, 1992. "Financial intermediary services and growth," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 383-405, December.
    7. Max Gillman & Mark N. Harris, 2004. "Inflation, Financial Development and Endogenous Growth," Monash Econometrics and Business Statistics Working Papers 24/04, Monash University, Department of Econometrics and Business Statistics.
    8. Max Gillman & Michal Kejak, 2004. "The Demand for Bank Reserves and Other Monetary Aggregates," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 518-533, July.
    9. Atish R. Ghosh & Steven T Phillips, 1998. "Inflation, Disinflation, and Growth," IMF Working Papers 98/68, International Monetary Fund.
    10. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
    11. Robert J. Barro, 2001. "Human Capital and Growth," American Economic Review, American Economic Association, vol. 91(2), pages 12-17, May.
    12. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Michael A. Stemmer, 2017. "Revisiting Finance and Growth in Transition Economies - A Panel Causality Approach," Documents de travail du Centre d'Economie de la Sorbonne 17022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Guglielmo Maria Caporale & Christophe Rault & Anamaria Sova & Robert Sova, 2014. "The finance–growth nexus: evidence from ten new EU members," Chapters,in: Financial Cycles and the Real Economy, chapter 13, pages 217-234 Edward Elgar Publishing.
    3. Khurshid Djalilov & Jenifer Piesse, 2011. "Financial Development and Growth in Transition Countries: A Study of Central Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 4-23, November.
    4. Guglielmo Maria Caporale & Christophe Rault & Robert Sova & Anamaria Sova, 2009. "Financial Development and Economic Growth: Evidence from Ten New EU Members," Discussion Papers of DIW Berlin 940, DIW Berlin, German Institute for Economic Research.
    5. Khurshid Djalilov & Jenifer Piesse, 2011. "Financial Development and Growth in Transition Countries: A Study of Central Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 4-23, November.
    6. Dombi, Akos & Grigoriadis, Theocharis, 2017. "Ancestry, Diversity & Finance: Evidence from Transition Economies," Discussion Papers 2017/4, Free University Berlin, School of Business & Economics.
    7. Max Gillman & Michal Kejak, 2007. " Inflation, Financial Development and Human Capital-Based Endogenous Growth: an Explanation of Ten Empirical Findings," CDMA Conference Paper Series 0703, Centre for Dynamic Macroeconomic Analysis.
    8. Polterovich, Victor, 2006. "Снижение Инфляции Не Должно Быть Главной Целью Экономической Политики Правительства России
      [Decreasing Inflation Should not Be the Main Task of the Russian Government Economic Policy]
      ," MPRA Paper 22064, University Library of Munich, Germany.

    More about this item

    Keywords

    Transition; panel data; inflation; investment rate; financial depth; endogeneity;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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