Date of Award

Spring 5-2017

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Political Science, International Development, and International Affairs

Committee Chair

Dr. Joseph J St. Marie

Committee Chair Department

Political Science, International Development, and International Affairs

Committee Member 2

Dr. Robert Pauly

Committee Member 2 Department

Political Science, International Development, and International Affairs

Committee Member 3

Dr. Tom Lansford

Committee Member 3 Department

Political Science, International Development, and International Affairs

Committee Member 4

Dr. Shahdad Naghspour

Abstract

There are significant differences in the economic growth trajectories of Western, Central and Eastern Europe since the beginning of the democratic movements of the early 1990s. It may be observed that the more developed the region, the lower the growth rate. There are a number of explanations for this growth rate variance, e.g. cultural, resources, institutional and/or political. An explanation this research is pursuing is institutional - the correlation between banking development and economic growth. More specifically, does banking development have a greater impact on growth where economic development begins at a lower level?

Very little research has been directed toward the distinction between market and banking development, and which channel is more effective in stimulating economic growth. In the research that has utilized banking development metrics, the number of metrics have been few and very broad spectrum. Because of multicollinearity, increasing the number of metrics is problematic. A solution is necessary to manage the multicollinearity that is expected in the expansion of the number of independent variables. Principal component analysis (PCA) is one option.

This study makes three contributions to the literature with respects to the banking-to-growth nexus: a) reconstructs the explanation and measurement of banking development; b) uses principal component analysis to reduce a large number of banking metrics into a smaller number of components; and, c) the specification of multiple models focused on the banking development-to-economic growth dynamic. Through PCA, twenty one banking variables measuring access, depth, efficiency, and stability are transformed into components to test the strength of the correlation between banking development and economic growth in Western, Central and Eastern Europe during the period (2004 – 2013).

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