Financial Sector Development and Economic Growth - Evidence for Southeastern Europe

Many inquiries into whether and how finance supports economic growth use broad cross-country samples, combine countries at a different development stage, focus on the financial system at large, and rely on older data. Using recent (1995-2005) data, we investigate the finance-growth-nexus in a narrow four-country sample of four emerging economies from Southeastern Europe that share many similarities. We apply a production function approach to analyze the impact of single financial market segments along with real capital stock growth, labor participation rate and educational attainment. Bond markets and the capital stock proved to have significant and positive effects on growth