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© 2022 International Monetary Fund
WP/22/134
IMF Working Paper
Middle East and Central Asia Department
Financial Development and Growth in the Caucasus and Central Asia
Prepared by Tigran Poghosyan
Authorized for distribution by Nicolas Blancher
July 2022
IMF Working Papers describe research in progress by the author(s)and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper presents stylized facts on financial development in the CCA countries relative to their EM and LIC peers and assesses how financial development can boost growth in the CCA. Drawing on IMF’s multidimensional index of financial development, we find that CCA countries have made progress following the independence in early 1990s. However, the progress was uneven across the CCA, resulting in a divergence of financial development overtime and mixed performance relative to EM and LIC peers. Financial institutions have progressed the most, while financial markets remain under developed in most CCA countries except Kazakhstan. In terms of sub-indicators of financial development, financial access has expanded markedly, while the depth of financial intermediation has remained largely shallow and efficiency of financial intermediation has fluctuated overtime. Standard growth regressions suggest that CCA countries with relatively lower level of financial development have scope to boost annual growth rates between 0.5–2.5 percent by reaching the level of financial development of frontier CCA countries.
RECOMMENDED CITATION: Poghosyan, Tigran. 2022. “Financial Development and Growth in the Caucasus and Central Asia.” IMF Working Paper22/134.
| JEL Classification Numbers: | G10,G20,O47 |
| Keywords: | Caucasus and Central Asia; financial development; outputgrowth |
| Author’s E-Mail Address: | TPoghosyan@imf.org |
| JEL Classification Numbers: | G10,G20,O47 |
| Keywords: | Caucasus and Central Asia; financial development; outputgrowth |
| Author’s E-Mail Address: | TPoghosyan@imf.org |
Title Page
WORKING PAPERS
Financial Development and Growth in Caucasus and Central Asia
Prepared by Tigran Poghosyan
Contents
I. Introduction
II. Financial Development in the CCA: Stylized Facts
A. Financial Development Index
B. Financial Development in the CCA
III. Financial Development and Growth: Empirical Analysis
A. Empirical Specification
B. Estimation Results
C. Policy Recommendations
IV. Conclusions
References
FIGURES
Figure 1. Financial Development Index
Figure 2. Financial Development Index in the CCA Countries
Figure 3. Financial Institutions and Financial Markets Indices in the CCA Countries
Figure 4. Sub-Indices of Financial Institutions Index in the CCA Countries
Figure 5. Bell-Shaped Relationship between Financial Development and Growth
Figure 6. Selected Financial Development Indicators: CCA versus EM and LIC peers, 2019
TABLES
Table 1. Estimation Results
I would like to thank Masud Al Taj, Nicolas Blancher, Mikhail Bogatyrev, Yehenew Endegnanew, Nikoloz Gigineishvili, Gregorio Impavido, Giulio Lisi, Maria Soledad Martinez Peria, Jan Strasky, Jeromin Zettelmeyer and CCAMTAC research seminar participants for helpful comments and suggestions. Liliya Nigmatullina provided excellent production assistance. The usual disclaimer applies.