Financial development and economic growth in transition countries

Markus Neimke

No 173, IEE Working Papers from Ruhr University Bochum, Institute of Development Research and Development Policy (IEE)

Abstract: To explain the growth dynamics in the transition economies of Eastern Europe and the former Soviet Union the relative importance of monetary variables is analysed. A theoretical as well as an empirical approach are employed to make predictions about how financial development will affect economic growth. In a simple growth model it is shown that enhanced financial market development should increase the overall growth rate unambiguously. The empirical analysis, following approaches conducted for industrial and developing countries, includes a wide set of indicators, each of them capturing different aspects of financial development. Actually, on the basis of different econometric estimations a significant growth impact of financial development is identified for the economies under study. Beside increasing investment, total factor productivity has to be considered as an important transmission channel, which is influenced by financial development.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ieewps:173

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