1. bookVolume 9 (2020): Issue 1 (January 2020)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
access type Open Access

Essay on Finance-Growth Nexus

Published Online: 28 Jan 2020
Volume & Issue: Volume 9 (2020) - Issue 1 (January 2020)
Page range: 97 - 109
Received: 10 Dec 2018
Accepted: 18 Feb 2019
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

There is a long tradition in literature that banks can play a special role in the propagation of economic fluctuations. Theory suggests many channels through which financial system affects, and is affected by, economic growth. One of the most important empirical studies on this topic shows a strong positive relation between financial development and economic growth. However, the hypothesis that credit expansion is the main development instrument was challenged in the Asian crisis in the second half of the 1990s, and then even more strongly in the crisis after 2008 which was followed by almost a decade of economic stagnation. Development of the banking sector in Southeast European countries in the pre-crisis period was characterized by relatively high credit growth rates and, consequently, with an increase of the credit-to-GDP ratio. Some authors argue that the marginal effect of financial depth on economic growth becomes negative when credit to the private sector reaches about 100% of GDP. Taking into account relatively low level of credit-to-GDP ratio, we may assume that there is still enough room for finance to contribute to economic growth in Southeast European countries.

Keywords

JEL Classification

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