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Obstacles to Financial Development in Transition Economies: A Literature Survey
Author(s) -
McNulty James E.,
Harper Joel T.
Publication year - 2012
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/j.1468-0416.2012.00174.x
Subject(s) - incentive , capital (architecture) , transition (genetics) , economics , business , market economy , finance , economic system , financial system , geography , biochemistry , chemistry , archaeology , gene
This survey of approximately 70 studies considers five causes of weak financial system development in transition economies. These are: problem loans and inadequate capital; the absence of a credit culture, giving rise to perverse incentives to continue to make bad loans; inadequate regulatory systems; deposit insurance; and weak legal systems. There results a perverse feedback loop across the various problem areas that constrains the development of solutions. Policy recommendations include a focus on basic contract law as a way to break the perverse feedback loop.
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