THE IMPACT OF FINANCIAL DEVELOPMENT ON ECONOMIC GROWTH IN CENTRAL AND EASTERN EUROPE COUNTRIES

Numerous studies emphasize the importance of financial development on economic growth in Eastern and Central Europe countries. In order to analyze this relationship, a dynamic panel analysis was completed to assess the impact of financial development on economic growth in eleven selected countries in Eastern and Central Europe in the period from 1995. to 2014. Results of the analysis partially confirmed that financial development has a significant impact on economic growth. The size of monetary aggregates divided by GDP and the share of allocated loans in the total banking assets, displayed a positive impact on stimulating economic growth. However, the size of non-performing loans divided by GDP showed a negative effect on economic growth. The results revealed the banking sector as the most important part of the financial systems in countries analyzed, as well as a powerful drive in encouraging their positive economic growth.