XXVI Edition

14-15-16 December 2017"

The role of banks in CESEE countries - exploring non-standard determinants of economic growth

Bongini Paola , University of Milan Bicocca
Iwanicz-Drozdowska Małgorzata, Warsaw School of Economics
Smaga Paweł , Warsaw School of Economics and National Bank of Poland
Witkowski Bartosz, Warsaw School of Economics

This paper explores the finance and growth nexus in 14 countries from Central Eastern and South-Eastern Europe (CESEE) over the period of 1995-2015. We investigate whether adding „non-standard” variables (credit portfolio structure, credit cycle gap, foreign trade structure) changes the impact of typical determinants of economic growth. Results show that economic growth is negatively driven i.a. by credit granted to households. Further, we find no conclusive evidence of the significance of cyclical fluctuations of credit for economic development in CESEE, with credit to GDP having a strong adverse effect. Lastly, results indicate that a high degree of similarity of trade relations and foreign ownership in the banking sector is unfavorable for the host country’s economic growth. In all, inclusion of our „non-standard” variables had a material impact on the significance of “standard” economic growth determinants, which sheds new light on the way finance and growth nexus in CESEE was analyzed in hitherto literature.

Area: Banking

Keywords: financial development; economic growth; foreign-owned banks; post-communist economies; household credit; credit cycle; foreign trade

Paper file

University Network