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Finance and development in Southeast Europe in the interwar period

  • Kiril Kossev

    (University of Oxford)

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    How do financial systems affect economic growth? How effective were international financial flows in promoting economic development in Southeast Europe in the Interwar Period? A large literature argues that financial systems evaluate prospective entrepreneurs, mobilize savings to finance the most promising productivity-enhancing activities, diversify the risks associated with these innovative activities and reveal the expected profits from engaging in innovation rather than the production of existing goods using existing methods. Important part of the theoretical literature also argues that foreign capital, in contrast to other available sources of funding – like domestic financial sector and state capital - is more effective in monitoring performance, in promoting better corporate governance, promoting technological improvements and ensuring access to export markets for developed and large scale enterprises - but less effective in alleviating asymmetric information problems and ensuring access to funds to small and medium sized enterprises. This paper provides a review of the theory behind the above claims and argues that asking similar sorts of questions in relation to the economic development of the Balkans can be a very fruitful line of research. It proceeds to present aggregate data on international financial flows and their relative importance for industrial growth for the four Balkan countries of Bulgaria, Greece, Romania and Yugoslavia during the 1920s and 1930s.

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    Paper provided by National Bank of Serbia in its series SEEMHN papers with number 7.

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    Length: 25 pages
    Date of creation: Mar 2009
    Date of revision:
    Handle: RePEc:nsb:seemhn:7
    Note: The paper was presented at the Fourth Annual SEEMHN Conference hosted by the National Bank of Serbia, 27 March 2009 in Belgrade.
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    1. Fishlow, Albert, 1985. "Lessons from the past: capital markets during the 19th century and the interwar period," International Organization, Cambridge University Press, vol. 39(03), pages 383-439, June.
    2. Stiglitz, Joseph & Ocampo, Jose Antonio & Spiegel, Shari & Ffrench-Davis, Ricardo & Nayyar, Deepak, 2006. "Stability with Growth: Macroeconomics, Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199288144, March.
    3. Rafael La Porta & Florencio López-de-Silanes & Guillermo Zamarripa, 2003. "Related Lending," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 231-268, February.
    4. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    6. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    7. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    8. Calomiris, Charles W., 1995. "Universal banking and the financing of industrial development," Policy Research Working Paper Series 1533, The World Bank.
    9. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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