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The Financial Sector and Economic Development: Evidence from Southeast Europe [chapter]

Arnaud Mehl, Adalbert Winkler
2004 The Development of the Financial Sector in Southeast Europe  
Recent research has established a positive and causal link between financial development and economic growth in the long run. For this reason, financial sector reform has been regarded as conducive to faster growth in transition countries. In Southeast Europe, however, reform efforts in the first half of the 1990s failed to prevent inflationary finance in many countries, ultimately contributing to crises and large output losses. Only since the late 1990s, have tightened regulations and
more » ... ations and supervision as well as the opening of domestic banking sectors to foreign investors changed the environment of the financial sector in Southeast Europe positively. Our empirical evidence confirms that the improved quality of the financial sector and its environment has borne favourably on growth, more than financial deepening per se. Indeed, we do not find evidence of a positive impact of financial deepening on growth in the region. Conversely, together with macroeconomic stability, better creditor right protection and increasing foreign bank penetration are found to have a positive and significant impact on growth. JEL classification number: G21, G38, O16, P27 * ( ) European Central Bank and ( ) Ecares, Université libre de Bruxelles.
doi:10.1007/978-3-540-24820-0_2 fatcat:ufyitsikrjctlegnee7xcusl4m