Transformations  in
Business & Economics

FINANCIAL DEVELOPMENT. HAVE POST-COMMUNIST COUNTRIES CONVERGED?
Malgorzata Iwanicz-Drozdowska, Pawel Smaga, Bartosz Witkowski

ABSTRACT. The goal of this paper is to find out whether financial sectors in post-communist countries have managed to catch up with the "world leaders" over the last 20 years. Unlike previous research, this article analyses the beta and the sigma convergence as well as convergence clubs of two indicators of financial development, i.e. bank credit to GDP ratio, which shows the development of the banking sector, and the ratio of bank credit to stock market capitalization, which indicates the structure of financing. Our model covers all 19 European post-communist countries and 21 well-developed countries over the period of 1995-2014. The authors find evidence for strong beta and sigma convergence. It is also confirmed that the global financial crisis helped reduce the gap. Although the post-communist countries do not constitute one convergence club, some of them feature similarities. This underlines the different speeds of transition of financial systems in these countries  .

KEYWORDS: post-communist countries, financial development, convergence.

JEL classification: F36, G21, O52, P51.