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Money, Crises, and TransitionEssays in Honor of Guillermo A. Calvo$
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Carmen M. Reinhart, Carlos A. Vegh, and Andres Velasco

Print publication date: 2008

Print ISBN-13: 9780262182669

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262182669.001.0001

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Sources and Obstacles for Growth in Transition Countries: The Role of Credit

Sources and Obstacles for Growth in Transition Countries: The Role of Credit

(p.327) 13 Sources and Obstacles for Growth in Transition Countries: The Role of Credit
Money, Crises, and Transition

Fabrizio Coricelli

Bostjan Jazbeč

Igor Masten

The MIT Press

One of the distinguishing features of planned economies was the total irrelevance of credit and finance for the determination of output. Market reforms gave credit and finance a central role in economic activity. This chapter identifies some causes for the continuing underdevelopment of financial markets and explores the implications of such underdevelopment for growth in transition countries. Through an econometric analysis of microdata for a relatively large set of countries, including both advanced European and transition countries, it shows that financial sector development, through an increase in the depth of both bank credit and stock markets, would induce large growth effects. The chapter also finds that the impact of financial sector development on growth seems to be larger in transition than mature industrial countries. This suggests that growth effects are larger at lower levels of development of a financial sector, a condition characterizing most transition countries.

Keywords:   financial markets, transition countries, financial sector development, bank credit, stock markets

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