ABSTRACT
The numerous empirical studies on determinants of growth in transition economies (e.g. De Melo et al. 1996; Havrylyshyn 2001; Havrylyshyn et al. 1998, 2000; Berg et al. 1999) reflect efforts to explain the sizeable variations in growth performance seen in these countries. The relationship between financial markets and economic growth, however, has largely been ignored in earlier empirical studies. To our knowledge, the only study that empirically tests the relation between financial markets and economic growth in transition countries is Drakos’s (2002) paper on the effects of the banking sector’s structure on economic performance. No studies specifically assess the roles of the size and efficiency of domestic financial markets on economic growth in a large sample of transition countries. This chapter is a modest attempt to rectify this gap in the literature.
