Private Credit Development and Economic Growth In Transition Economies

Abstract

This research compares the links between the economic growth and the development of banking credit for the private sector in three transition economies. The empirical results confirm the choice of a case-by-case analytical and time series econometrical approach. Each country has its own specificities which justify the established long-run positive two-way link between the real and financial sector in Poland, the positive link going from the real sector towards the private credit development in the case of Hungary, and the negative two-way link between the two sectors in the case of the Czech Republic. We explain those particularities by the different methods of banking sector privatization, the different approaches for solving the bad credit problems, and the different attitudes towards banking FDI. The comparison between the experiences of these three countries underlines the importance of adequately supporting and regulating the emerging banking sectors in lower-income transition economies when designing growth-promoting economic policies on the road to EU accession.