IDEAS home Printed from https://ideas.repec.org/a/ssi/jouesi/v9y2022i3p173-197.html
   My bibliography  Save this article

Financialization: curse or salvation? The case of Latvia, a small and post-transition economy

Author

Listed:
  • Joanna Stawska

    (University of Lodz, Poland)

  • Ramona Rupeika-Apoga

    (University of Latvia, Latvia)

  • Maciej Malaczewski

    (University of Lodz, Poland)

  • Iwona Dorota Czechowska

    (University of Lodz, Poland)

  • Fatima Sol Murta

    (University of Coimbra, Portugal)

Abstract

The role of financial sector has increased significantly since the 1980s, introducing a new term or phenomenon i.e. the financialization of the economy. There is still some imprecision about the nature and dynamics of financialization, including its impact on the economy. The main task of the financial sector is to allocate funds for its most productive use, while ensuring sustainable development. Recent studies show that excessive financial deepening negatively impacts the economies of developed countries, but is this true for posttransition economies? The aim of this paper is to look into the relationship between financialization and the state of a small and posttransition economy, the Latvian economy. Using a European database and methodological framework we analyze this relationship in Latvia between 1999Q1 and 2017Q4. In our study, we apply the standard Vector Auto-Regressive model (VAR). Our research results do not indicate that financialization causes significant changes in the state of the Latvian economy. The interpretation of this result is related to the degree of financial deepening in Latvia.

Suggested Citation

  • Joanna Stawska & Ramona Rupeika-Apoga & Maciej Malaczewski & Iwona Dorota Czechowska & Fatima Sol Murta, 2022. "Financialization: curse or salvation? The case of Latvia, a small and post-transition economy," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(3), pages 173-197, March.
    • Handle: RePEc:ssi:jouesi:v:9:y:2022:i:3:p:173-197
    DOI: 10.9770/jesi.2022.9.3(11)
    as

    Download full text from publisher

    File URL: https://jssidoi.org/jesi/uploads/articles/35/Stawska_Financialization_curse_or_salvation_The_case_of_Latvia_a_small_and_posttransition_economy.pdf
    Download Restriction: no
    File URL: https://jssidoi.org/jesi/article/943
    Download Restriction: no
    File URL: https://libkey.io/10.9770/jesi.2022.9.3(11)?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
    2. Ederer, Stefan & Heumesser, Christine & Staritz, Cornelia, 2013. "The role of fundamentals and financialisation in recent commodity price developments: An empirical analysis for wheat, coffee, cotton, and oil," Working Papers 42, Austrian Foundation for Development Research (ÖFSE).
    3. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    4. Marco Pagano & Giovanni Pica, 2012. "Finance and employment [Credit constraints as a barrier to the entry and post-entry growth of firms]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(69), pages 5-55.
    5. Beck, Thorsten & Chen, Tao & Lin, Chen & Song, Frank M., 2016. "Financial innovation: The bright and the dark sides," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 28-51.
    6. Inessa Love, 2003. "Financial Development and Financing Constraints: International Evidence from the Structural Investment Model," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 765-791, July.
    7. Adams, Zeno & Glück, Thorsten, 2015. "Financialization in commodity markets: A passing trend or the new normal?," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 93-111.
    8. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    9. Ricardo Barradas & Sérgio Lagoa & Emanuel Leão & Ricardo Paes Mamede, 2018. "Financialization in the European Periphery and the Sovereign Debt Crisis: The Portuguese Case," Journal of Economic Issues, Taylor & Francis Journals, vol. 52(4), pages 1056-1083, October.
    10. Fajeau, Maxime, 2021. "Too much finance or too many weak instruments?," International Economics, Elsevier, vol. 165(C), pages 14-36.
    11. Ricardo Barradas, 2020. "Does the financial system support economic growth in times of financialisation? Evidence for Portugal," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 785-806, November.
    12. anonymous, 2012. "Noteworthy: Employment, immigration and finance," Southwest Economy, Federal Reserve Bank of Dallas, issue Q3, pages 1-14.
    13. Ekkehard Ernst, 2019. "Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics," JRFM, MDPI, vol. 12(1), pages 1-30, January.
    14. repec:oup:ecpoli:v:27:y:2012:i:69:p:5-55 is not listed on IDEAS
    15. Baljinder Kaur & Sood Kiran & Simon Grima & Ramona Rupeika-Apoga, 2021. "Digital Banking in Northern India: The Risks on Customer Satisfaction," Risks, MDPI, vol. 9(11), pages 1-18, November.
    16. Martin Sokol & Leonardo Pataccini, 2020. "Winners And Losers In Coronavirus Times: Financialisation, Financial Chains and Emerging Economic Geographies of The Covid‐19 Pandemic," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 111(3), pages 401-415, July.
    17. Behiye Cavusoglu & Saifullahi Sani Ibrahim & Huseyin Ozdeser, 2019. "Testing the relationship between financial sector output, employment and economic growth in North Cyprus," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-11, December.
    18. Joanna Stawska & Jorge Reis Mourao, 2021. "Expansionary or restrictive policies in the Eurozone? Dominating trends in the first two decades," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 71(3), pages 405-430, September.
    19. Adams, Zeno & Glueck, Thorsten, 2014. "Financialization in Commodity Markets: A Passing Trend or the New Normal?," Working Papers on Finance 1413, University of St. Gallen, School of Finance, revised Aug 2015.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2022. "Bank Development and Unemployment in Kenya: An Empirical Investigation," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 20(2 (Summer), pages 85-107.
    2. Martin Enilov & Giorgio Fazio & Atanu Ghoshray, 2023. "Global connectivity between commodity prices and national stock markets: A time‐varying MIDAS analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2607-2619, July.
    3. Tori, Daniele & Onaran, Özlem, 2017. "The effects of financialisation and financial development on investment: evidence from firm-level data in Europe," Greenwich Papers in Political Economy 16089, University of Greenwich, Greenwich Political Economy Research Centre.
    4. Daniele Tori & Özlem Onaran, 2018. "The effects of financialization on investment: evidence from firm-level data for the UK," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1393-1416.
    5. Daniele Tori & Özlem Onaran, 2017. "Financialisation and physical investment: a global race to the bottom in accumulation?," Working Papers PKWP1707, Post Keynesian Economics Society (PKES).
    6. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    7. Randall Morck & Bernard Yeung, 2017. "East Asian Financial and Economic Development," NBER Working Papers 23845, National Bureau of Economic Research, Inc.
    8. Su-Yin Cheng & Han Hou, 2022. "Innovation, financial development, and growth: evidences from industrial and emerging countries," Economic Change and Restructuring, Springer, vol. 55(3), pages 1629-1653, August.
    9. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    10. Pietrovito, Filomena, 2009. "Investment decisions, price-earnings ratios and finance. Evidence from firm-level data," Economics & Statistics Discussion Papers esdp09054, University of Molise, Department of Economics.
    11. Lee, Kang-Kook & Islam, Md. Rabiul, 2011. "Financial Development and Financing Constraints in a Developing Country: The Case of Bangladesh," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 46(1), pages 41-67.
    12. Thorsten Beck, 2009. "The Econometrics of Finance and Growth," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 25, pages 1180-1209, Palgrave Macmillan.
    13. Love, Inessa & Zicchino, Lea, 2002. "Financial development and dynamic investment behavior : evidence from panel vector autoregression," Policy Research Working Paper Series 2913, The World Bank.
    14. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
    15. Chor Foon Tang & Salah Abosedra, 2020. "Does Financial Development Moderate the Effects on Growth Volatility? The Experience of Malaysia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(4), pages 361-381, November.
    16. Emmanuel Carré & Guillaume L’Œillet, 2017. "Une revue de la littérature récente sur le nexus finance-croissance après la crise : apports, limites et pistes de recherche," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 271-290.
    17. Behr, Patrick & Norden, Lars & Noth, Felix, 2013. "Financial constraints of private firms and bank lending behavior," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3472-3485.
    18. Norman Loayza & Amine Ouazad & Romain Ranciere, 2017. "Financial Development, Growth, and Crisis: Is There a Trade-Off?," Working Papers 114, Peruvian Economic Association.
    19. Su-Yin Cheng & Han Hou, 2022. "Financial development, life insurance and growth: Evidence from 17 European countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 835-860, October.
    20. Patrick Behr & Lars Norden & Raquel Oliveira, 2020. "Labor and Finance: the effect of bank relationships," Working Papers Series 534, Central Bank of Brazil, Research Department.

    More about this item

    Keywords

    financialization; post-transition economy; sustainable development; small and open economy; economic policy;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssi:jouesi:v:9:y:2022:i:3:p:173-197. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuela Tvaronaviciene (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.