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

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.