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Financial Development and Economic Growth: The Role of Foreign-Owned Banks in CESEE Countries

Paola Bongini (), Małgorzata Iwanicz-Drozdowska (), Paweł Smaga () and Bartosz Witkowski ()
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Paola Bongini: School of Economics and Statistics, Milan-Bicocca University, 20126 Milano, Italy
Paweł Smaga: Institute of Finance, Warsaw School of Economics, 02-554 Warszawa, Poland

Sustainability, 2017, vol. 9, issue 3, 1-25

Abstract: This study focuses on the role of financial development in the economic growth of Central, Eastern and South-Eastern European (CESEE) countries in the post-communist era (1995–2014), which coincides with the opening up of financial markets to foreign investors and the global financial crisis. We investigate whether economic growth in CESEE countries has benefited from the presence of foreign-owned banks. To this end, we introduce some refined measures of financial development and control for banks’ financial strength. Our results challenge the idea that bank credit fosters economic growth and that foreign-owned banks are indisputably a positive addition to local markets able to foster economic growth.

Keywords: financial development; economic growth; foreign-owned banks; post-communist economies (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2017
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