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Economic Growth Through Financial Development: Empirical Evidences from New Member States and Western Balkan Countries

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Crisis after the Crisis: Economic Development in the New Normal (ESPERA 2021)

Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

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Abstract

This study provides some other pieces of evidence on the relation and the contribution of financial development to economic growth for two specific regions, such as the group of new members (NMS) of the EU and the Western Balkan countries (WBC). This study applies panel data using relevant proxies for the model. According to the study results and based on threshold regression, a non-linear association is confirmed between financial and economic growth. More specifically, the interaction effect of remittances and financial development complement the economic growth of NMS. In addition, the findings show that both, financial development and remittances, are pushing the reduction the economic growth in WBC. Although the NMS can be well-integrated with the rest of the EU countries, there is still room for improvement in governance and enterprise restructuring. To gain sustainable growth across developing countries, policymakers should target the following: (1) increasing the saving ratio to increase the productive investment; (2) narrowing interest rate margins to encourage domestic credit to the private sector.

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Notes

  1. 1.

    Countries with high financial deepening and advancement tend to have high economic development and progress than shallow financial development and vice versa. We used broad money stock (M2/GDP) as a threshold variable and using GDP per capita as regime dependent variable.

  2. 2.

    Our results are much better by using the first lagged level of endogenous variables (remittances, broad money stock, domestic credit/the private sector) as compared to the findings of Buch et al. [8], and Reed [53]. Using the first level lagged variables of remittances, financial development (M2/GDP, domestic credit, saving ratio) provide non-rejection of the Sargan-Hansen test value. Our model does not suffer from overidentification, i.e., due to the first lagged of these variables. The lagged variables would allow us to interpret the past year’s effect. In addition, using lags of these variables to some extend minimize the causality problem in our model.

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Author information

Authors and Affiliations

  1. Epoka University, Tirana, Albania

    Eglantina Hysa

  2. Westminster International University, Tashkent, Uzbekistan

    Naqeeb Ur Rehman

Authors
  1. Eglantina Hysa
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Correspondence to Eglantina Hysa .

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Editors and Affiliations

  1. National Institute for Economic Research “Costin C. Kiritescu” (INCE), Romanian Academy, Bucuresti, Romania

    Luminita Chivu

  2. GESPLAN Research Group, Universidad Politécnica de Madrid, Madrid, Spain

    Ignacio De Los Ríos Carmenado

  3. Business Administration, Petroleum & Gas University of Ploieşti, Ploiesti, Prahova, Romania

    Jean Vasile Andrei

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Hysa, E., Rehman, N.U. (2023). Economic Growth Through Financial Development: Empirical Evidences from New Member States and Western Balkan Countries. In: Chivu, L., De Los Ríos Carmenado, I., Andrei, J.V. (eds) Crisis after the Crisis: Economic Development in the New Normal . ESPERA 2021. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-30996-0_4

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