Changing Importance of Financial Sectors for Growth from Transition to Cohesion and European Integration

Europainstitut WU-Wien Working Paper No. 58

59 Pages Posted: 5 Jan 2005

See all articles by Gerhard Fink

Gerhard Fink

Dept of International Business and Trade

Peter R. Haiss

WU Vienna University of Economics and Business; UniCredit Bank Austria; IES Vienna - Institute for the International Education of Students

Goran Vuksic

Institute of Public Finance

Date Written: July 2004

Abstract

We use a production function approach in investigating the relationship between financial development and economic growth in 9 EU accession - mostly transition countries. These findings are compared with the results for the group of 18 developed countries, and separately, with the results for a group of less developed EU countries - structural fund recipients. We use aggregate measures of financial development as well as measures for single segments of financial sectors. In context of transition countries, bond markets are, to our knowledge, taken explicitly into account for the first time. We find that domestic credit and bond markets together with real capital stock growth stimulate economic growth in transition. With progress in cohesion, educational attainment becomes the next important factor that contributes to economic growth followed by labor participation in mature market economies. For the developed countries, financial sector did not play any positive role for growth over the period under study. We conclude that transfer mechanisms for growth differ over the development cycle. This is important to growth theory, to the sequencing of economic reforms and to financial sector development priorities.

Keywords: Finance, educational attainment & growth, EU-cohesion and EU-accession countries, production function, credit, bond, stock markets

JEL Classification: C31, C33, G21, N20, 047, 057

Suggested Citation

Fink, Gerhard and Haiss, Peter R. and Vuksic, Goran, Changing Importance of Financial Sectors for Growth from Transition to Cohesion and European Integration (July 2004). Europainstitut WU-Wien Working Paper No. 58, Available at SSRN: https://ssrn.com/abstract=640901 or http://dx.doi.org/10.2139/ssrn.640901

Gerhard Fink

Dept of International Business and Trade ( email )

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Peter R. Haiss (Contact Author)

WU Vienna University of Economics and Business ( email )

Institute for Production Management
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Goran Vuksic

Institute of Public Finance ( email )

Katanciceva 5
10000 Zagreb
Croatia

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