<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

Essay on Finance-Growth Nexus

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"Essay on Finance-Growth Nexus"}

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...

Essay on Finance-Growth Nexus

Online veröffentlicht: 28. Jan. 2020

Seitenbereich: 97 - 109

Eingereicht: 10. Dez. 2018

Akzeptiert: 18. Feb. 2019

DOI: https://doi.org/10.2478/jcbtp-2020-0006

Schlüsselwörter
finance-growth nexus, credit-to-GDP ratio, Southeast European countries

© 2019 Željka Asanović, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Essay on Finance-Growth Nexus

Online veröffentlicht: 28. Jan. 2020

Seitenbereich: 97 - 109

Eingereicht: 10. Dez. 2018

Akzeptiert: 18. Feb. 2019

DOI: https://doi.org/10.2478/jcbtp-2020-0006

Schlüsselwörterfinance-growth nexus, credit-to-GDP ratio, Southeast European countries

© 2019 Željka Asanović, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Schlüsselwörter
finance-growth nexus, credit-to-GDP ratio, Southeast European countries