Inflation, Financial Development and Growth in Transition Countries

Abstract

The paper presents panel data evidence for 13 transition countries on inflation, financial development and growth. It contributes to the growth literature by showing that the transition countries conform to developed country evidence in particular with the strong negative effect of inflation on growth. It also contributes more evidence to the debate on the role of financial development. Once inflation and the investment rate are included in the model, a key measure of financial development no longer has a positive effect on growth, as some recent literature has found.Transition, panel data, inflation, investment rate, financial depth, endogeneity