Essays on the Empirics of Finance and Growth in Transition Economies

The role of finance in explaining economic growth is a pervasive topic in both theoretical and empirical literature. The increased pace of financial liberalization towards the end of the 20 th century has stimulated a large body of research that still contains many unresolved issues and controversial empirical findings on the existence of a positive causal link of financial development to growth. In addition, the process of financial development raises several issues regarding financial stability, which — as demonstrated by the global financial crisis that started in 2007 — is closely linked to the issues of overall macroeconomic stability and welfare. This thesis is a collection of three essays that each contribute to the literature on the role of financial development on growth, the corresponding role of international financial integration and risk assessment in the financial industry. The nature of the essays is empirical with a significant focus on transition economies of Central and Eastern Europe. The first paper is an empirical analysis of the subject, emphasizing the non-linearity of the relationship between financial development and economic growth. The second paper shifts the focus from the effect of financial development on growth to a study of the effects of financial integration on growth. While remaining in the field of empirical finance, the third paper of the thesis represents a larger departure from the first two, both in terms of a narrower research focus and the econometric methodology employed. The paper addresses the issue of financial stability and the use of appropriate methods of credit risk assessment at the firm level.