Arbeitspapier

Do efficient banking sectors accelerate economic growth in transition countries?

The relationship between financial sector and economic growth in transition countries has been largely ignored in the earlier empirical literature.In this paper, we analyse the finance-growth nexus using a fixed-effects panel model and unbalanced panel data from 25 transition countries during the period 1993-2000.We measure the qualitative development in the banking sectors using the margin between lending and deposit interest rates.Our second variable for the level of financial sector development is the amount of bank credit allocated to the private sector as a share of GDP.According to our results, the interest rate margin is significantly and negatively related to economic growth.This outcome is in line with theoretical models and has important policy implications.On the other hand, a rise in the amount of credit does not seem to accelerate economic growth.The main reasons behind this result could be the numerous banking crises the transition countries have experienced and the soft budget constraints that are still prevalent in many transition countries. Due to these specific characteristics the growth in credit has not always been sustainable and in some cases it may have led to a decline in growth rates.

ISBN
951-686-842-8
Sprache
Englisch

Erschienen in
Series: BOFIT Discussion Papers ; No. 14/2002

Klassifikation
Wirtschaft
Thema
financial sector
transition economies
economic growth
panel data

Ereignis
Geistige Schöpfung
(wer)
Koivu, Tuuli
Ereignis
Veröffentlichung
(wer)
Bank of Finland, Institute for Economies in Transition (BOFIT)
(wo)
Helsinki
(wann)
2002

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Koivu, Tuuli
  • Bank of Finland, Institute for Economies in Transition (BOFIT)

Entstanden

  • 2002

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