Financial Intermediation and Economic Development in 12 Central and Eastern European Economies

• Main Author: Bakar, Eric S
• Format: Others
• Published: Scholarship @ Claremont 2017
• Subjects: Financial intermediation; central and eastern europe; Economics
• Online Access: http://scholarship.claremont.edu/cmc_theses/1501; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=2539&context=cmc_theses

This paper takes a panel series approach to investigate whether the intensity of financial intermediation encouraged investment and growth in 12 Central and Eastern European(CEE) economies from 2001 to 2015. The results from our regression confirmed our hypothesis that there was a uni-directional relationship between financial intermediation and economic growth and while we only analyzed 12 CEE countries, this relationship has held among other developing countries as well. We will provide background on the general CEE transition out of communism and the ensuing ebbs and flows of the financial and real sector through the early 2000s. The 2008 financial crisis marked a key event for CEE that gave us the opportunity to analyze important characteristics of how our model acted before and after a major crisis. We found a significant relationship with the crisis and our finance-growth model that furthered our prediction that the expansion of financial intermediaries in developing countries acts as a key mechanism through which an economy grows. The research allowed us to understand the nature of statistical causality between financial and real sector activity.