Countries In Transition Banking Reform And Its Impact On Economic Growth Analysis

Under the global environment of financial opening, banking sectors of transition countries have been undergone the course of recapitalization, restructuring, turbulence, stabilization, consolidation and development. The banking reforms in most transitioneconomies usually consist of three stages──setting up of two-tier banking system,recapitalization and restructuring, and privatization. Due to the different transition strategy as well as different measures taken and different sequence followed, transition countries got different outcome of transition. The advanced transition economies such as Central and Eastern European (CEE) countries rely on foreign strategic investors to finally complete their privatization and promote economic growth despite of different banking development strategies among these countries. From the perspective of foreign banks' entry, the thesis discusses the five transmission channels through which foreign banks accelerate economic growth. And then makes a theoretical research and empirical test on economic effects of the entry of foreign banks. The author finally summarizes valuable conclusions and enlightenments for Chinese banking reform.This thesis comprises of 7 chapters, main content of each chapter is presented as follows:Introduction covers the theoretic and practical value of this thesis, researchmethod and technical route used in this thesis, definitions of relevant concepts, and also the main innovations and drawbacks of this thesis.Chapter 1 makes a review of the literature and makes systematic sum-up and comment on relation between financial reform, development and economic growth together with economic effect of foreign banks.Chapter 2 gives a detailed investigation of banking reform in CEE and Commonwealth of Independent State (CIS) countries. By use of the abundant and accurate data, the author make a staged research on the background, initial conditions, measures and outcome of the banking reform in each country. Experience and lessons of banking transition in these countries are also summarized in this chapter. These two categories of countries exhibit great differences among initial state, strategy, mode, speed and outcome of transition. Based on the previous context, this chapter gives comprehensive comparison of these CEE and CIS countries: (1) the manner of banking reform; (2) approach of privatization; (3) banking ownership structure; (4) the government role during transition.Chapter 3 analyzes the banking structure evolution together with the entry of foreign banks in transition countries. It covers four parts: first, it introduces the formation of bank-based financial structure in most transition countries. The author believes that the choice of bank-based financial structure by transition countries is not only the consequence of theory but also the results of certain economic development stage. Second, from the perspective of "quantity", it makes a universal study of the banking structure of Poland, Czech, Hungary, Russia, Belarus and Ukraine, which disclosures that significant changes have taken place in these countries' banking structure: financial depth increases, scale of banking sector expands and market concentration raises. Third, from the perspective of "quality", The thesis uses CAMEL index frame to systematically analyze and compare the stability of banking system of these six CEE and CIS countries. Results show that with respect to initial astages of transition, there's a remarkable enhancement in these countries' banking system stability and stability of CEE countries as a whole excels CIS countries. The final part of this chapter talks about the entry of foreign banks and consequent change of the banking sector ownership structure.Chapter 4 discusses the economic effect of foreign banks. The first section of this chapter reviews the strategy and motivation of foreign banks' entry from the perspective of foreign banks themselves and discusses the relationship between strategy of foreign bank and their credit behavior. The next Section analyzes the advantage and disadvantage of foreign banks from the perspective of host countries. Section 3 gives the five transmission channels through which foreign banks accelerate economic growth: efficiency, credit volume, corporate governance, institution building and signal effects. The last section of this chapter uses practical data to describe and analyze the conditions and economic effect of foreign banks' entry into transition countries. From this it can be seen roughly that foreign banks do contribute to economic growth of transition countries by means of raising efficiency, accelerating credit volume, improving corporate governance and promoting institution building as well as strong signal effects.Chapter 5 constructs a Ramsey model combined with a finance sector. Based on a standard Ramsey-Cass-Koopmans growth model (including household sector and manufacturers), we introduce a financial sector to analyze the well-being of domestic households. It uses optimization and optimal control approach to solve the steady value and uses numeric simulation to plot its dynamic path. Results show that financial opening in development countries can promote economic growth as well as consumption and capital per worker. However, these salubrious effects only come forth after a considerable period of time has elapsed.Chapter 6 makes econometric test of the impact of foreign banks entry on transition countries' economic growth. This chapter uses panel data analysis to check both the long-term and short-term effects on economic growth of five CEE countries ( Czech, Hungary, Poland, Slovak, Slovenia) and three CIE countries( Russia, Belarus and Ukraine). The results show that increase in number share of foreign banks has positive effect on economic growth in short term, while increase in capital share of foreign banks has negative effect on economic growth. Long term results show that after a period time the positive effect on economic growth of foreign banks entry starts to appear both through number share and capital share. It shows that there need to be a period of time before the positive effect of foreign banks entry to take place.Chapter 7 is the sum-up of the thesis. The main standpoints of this thesis are as follows: firstly, for a small open economy, bank privatization is the milestone of the banking reform and foreign strategic investors has decisive effect on finalization of privatization progress; for major economy, state-owned banks are responsible for stability of banking system. Meanwhile, private banks and foreign banks promote the competition and efficiency of the banking system as well. Secondly, theory and practice both show that financial opening can accelerate economic growth, but positive effect appears only after a period of time. Thirdly, besides banking reform, relative institution building and improvement of legal framework and supervision system are the important conditions for stabilizing the transition progress and are also the main reasons causing difference of reforming results. Finally, during the transition, the government should take on the responsibility of building correct reform strategy, promoting institution building and stabilizing macro economy.