Catching Up in the Global Economy
Catching Up in the Global Economy
Good and Bad Banks in East Central Europe
This chapter examines the developmental consequences of highly marketized bank–state ties in East Central Europe. The literature suggests that catching up in the global economy requires—among other things—access to capital and control over its allocation. East Central Europe, as a region, therefore, is not poised to catch up with its West European counterparts, measured in terms of income convergence. But this chapter also highlights why not all, or even most, of the post-communist countries would be well-served by asserting more political control over their banks. Measures of domestic banks’ risk containment and credit provision through the US and European economic crises show which countries had the institutional and ideational wherewithal to deploy their banks for political goals. While domestically controlled banks in Poland and Hungary served as countercyclical stabilizers, their counterparts in Latvia, Slovenia, and Bulgaria did outright damage to their economies.
Keywords: economic development, foreign direct investment, catching up, domestic banks, income convergence, Poland, Hungary, Latvia, Bulgaria, Slovenia
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