Obstacles to Financial Development in Transition Economies: A Literature Survey

38 Pages Posted: 17 Oct 2012

See all articles by James E. McNulty

James E. McNulty

Florida Atlantic University

Joel T. Harper

Miami University of Ohio - Department of Finance

Date Written: November 2012

Abstract

This survey of approximately 70 studies considers five causes of weak financial system development in transition economies. These are: problem loans and inadequate capital; the absence of a credit culture, giving rise to perverse incentives to continue to make bad loans; inadequate regulatory systems; deposit insurance; and weak legal systems. There results a perverse feedback loop across the various problem areas that constrains the development of solutions. Policy recommendations include a focus on basic contract law as a way to break the perverse feedback loop.

Suggested Citation

McNulty, James E. and Harper, Joel T., Obstacles to Financial Development in Transition Economies: A Literature Survey (November 2012). Financial Markets, Institutions & Instruments, Vol. 21, Issue 4, pp. 203-240, 2012, Available at SSRN: https://ssrn.com/abstract=2162327 or http://dx.doi.org/10.1111/j.1468-0416.2012.00174.x

James E. McNulty (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33341
United States
(561) 297-2708 (Phone)

Joel T. Harper

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

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