Financialization: curse or salvation? The case of Latvia, a small and post-transition economy

Joanna Stawska (), Ramona Rupeika-Apoga (), Maciej Malaczewski (), Iwona Dorota Czechowska () and Fátima Sol Murta
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Joanna Stawska: University of Lodz, Poland
Ramona Rupeika-Apoga: University of Latvia, Latvia
Maciej Malaczewski: University of Lodz, Poland
Iwona Dorota Czechowska: University of Lodz, Poland

Entrepreneurship and Sustainability Issues, 2022, vol. 9, issue 3, 173-197

Abstract: The role of financial sector has increased significantly since the 1980s, introducing a new term or phenomenon i.e. the financialization of the economy. There is still some imprecision about the nature and dynamics of financialization, including its impact on the economy. The main task of the financial sector is to allocate funds for its most productive use, while ensuring sustainable development. Recent studies show that excessive financial deepening negatively impacts the economies of developed countries, but is this true for posttransition economies? The aim of this paper is to look into the relationship between financialization and the state of a small and posttransition economy, the Latvian economy. Using a European database and methodological framework we analyze this relationship in Latvia between 1999Q1 and 2017Q4. In our study, we apply the standard Vector Auto-Regressive model (VAR). Our research results do not indicate that financialization causes significant changes in the state of the Latvian economy. The interpretation of this result is related to the degree of financial deepening in Latvia.

Keywords: financialization; post-transition economy; sustainable development; small and open economy; economic policy (search for similar items in EconPapers)
JEL-codes: F43 F63 F65 G20 P20 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ssi:jouesi:v:9:y:2022:i:3:p:173-197

DOI: 10.9770/jesi.2022.9.3(11)

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