1. bookVolume 2 (2020): Issue 1 (December 2020)
Journal Details
License
Format
Journal
First Published
20 Oct 2019
Publication timeframe
1 time per year
Languages
English
access type Open Access

Measuring the Level of Financial Development of U.E. Member Countries

Published Online: 31 May 2021
Page range: 176 - 187
Journal Details
License
Format
Journal
First Published
20 Oct 2019
Publication timeframe
1 time per year
Languages
English
Abstract

A financial sector that is developed and well functional is a key component of an economy. Numerous articles in the literature study the influence of financial development on the poverty reduction or on the economic growth. However, this paper proposes to compare the level of financial development of EU member states, but also to discover a shortcut in defining the financial level of a country. The methodology that allows this is composed of three steps: creating a composite index based on the main principal components that measure the level of the financial system; creating a categorical variable based on the values of the index (financial developed countries have a positive index value and vice versa) and applying the Decision Trees algorithm to the extended dataset. The results of the study show an underdeveloped financial level for Romania, which is at the opposite pole from Luxembourg, the country with the highest level of the financial system. Among the definition patterns found, is the following condition: if the percent of accounts used to receive wages is greater than 49.74%, the saved using a savings club in the past year (%) is greater than 3.95%, the customer price index is greater than 106.99 and the debit card (%) is greater than 90.69%, then this indicate a good financial development level.

Keywords

Babu, S. G. (2018). Role of financial system in economic development of a country. International Journal of Multidisciplinary Research and Development, 5(8), 100-107. Retrieved from https://www.academia.edu/37593266/Role_of_financial_system_in_economic_development_of_a_country.Search in Google Scholar

Čihák, M., Demirgüç-Kunt, A., Feyen, E. and Levine, R. (2012). Benchmarking Financial Systems around the World. Policy Research Working Paper, World Bank. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/12031/wps6175.pdf?seq.Search in Google Scholar

Davidescu, A., Paul, A., Gogonea, & R. M., Zaharia, M. (2015). Evaluating Romanian Eco-Innovation Performances in European Context. Sustainability, 7(9), 12723-12757. Retrieved from http://www.mdpi.com/2071-1050/7/9/12723/html#B21-sustainability-07-12723.Search in Google Scholar

Demirgüç-Kunt, A. şi Levine, R. (2004). Financial Structure and Economic Growth: A Cross-country Comparison of Banks, markets, and development. The MIT Press.Search in Google Scholar

Gelbard, E. and Leite, S. (1999). Measuring Financial Development in Sub-Saharan Africa. International Monetary Fund. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Measuring-Financial-Development-in-Sub-Saharan-Africa-3245.Search in Google Scholar

Hastie, T.J., Tibshirani, R.J., Friedman, J.H. (2009). The Elements of Statistical Learning: Data Mining Inference and Prediction. Second Edition. Springer. Retrieved from https://web.stanford.edu/~hastie/Papers/ESLII.pdf.Search in Google Scholar

Hussain, F., Chakraborty, D.K. (2012). Causality between Financial Development and Economic Growth: Evidence from an Indian State. The Romanian Economic Journal, 45, 27-48. Retrieved from https://www.researchgate.net/publication/284188336_Causality_between_Financial_Development_and_Economic_Growth_Evidence_from_an_Indian_State.Search in Google Scholar

Kherif, F., and Latypova, A. (2020). Principal component analysis. Machine Learning, 209–225. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1002/0471271357.ch12.Search in Google Scholar

Levine, R. (2005). Finance and Growth: Theory and Evidence. Handbook of Economic Growth, edition 1, Vol. 1, chapter 12, pp. 865-934. Retrieved from https://www.researchgate.net/publication/5185432_Finance_and_Growth_Theory_and_Evidence.Search in Google Scholar

Nicet-Chenaf, D. (2012). Model of Financial Development: A cluster analysis. Cahiers du GREThA (2007-2019) 2012-01, Groupe de Recherche en Economie Théorique et Appliquée (GREThA). Retrieved from https://ideas.repec.org/p/grt/wpegrt/2012-01.html.Search in Google Scholar

OECD (2008). Handbook on Constructing Composite Indicators: Methodology and User Guide. OECD Statistics Working Papers from OECD Publishing. Retrieved from https://www.oecd.org/sdd/42495745.pdf.Search in Google Scholar

Vyas, S. and Kumaranayake. L. (2006). Constructing socio-economic status indices: how to use principal components analysis. Health Policy and Planning, 21 (6), 459–68. Retrieved from https://academic.oup.com/heapol/article/21/6/459/612115.Search in Google Scholar

Zhuang, J. et al. (2009). Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review. ADB Economics Working Paper Series, Asian Development Bank (ADB). Retrieved online from https://www.econstor.eu/handle/10419/109358.Search in Google Scholar

Recommended articles from Trend MD

Plan your remote conference with Sciendo