Financial Development and Growth in Transition Countries: A Study of Central Asia

Abstract

Central Asian countries are examined pre- and postindependence to identify the impact of economic and financial development policies. The theoretical background to financial flows and the relation between the development of the financial system and economic growth in transition economies is analyzed using regression, correlation and Granger causality. Data from twenty-seven transition economies in eastern Europe and the former Soviet republics for 1992 to 2008 are used. The results indicate that the transition reform indicator of the European Bank for Reconstruction and Development appears to have a negative growth impact, and the results for the indicator of credit to the private sector show no significant effect on growth. Moreover, the difference between lending and borrowing rates appears to have a negative growth impact, as expected.

Keywords:

• Central Asia
• economic growth
• financial development