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Financialisation and Financial Crisis in South-Eastern European Countries


Dubravko Radošević and Vladimir Cvijanović

The book discusses various cases of financialisation and financial crisis in South-Eastern Europe. While these can be directly traced to the region’s reliance upon the global financial regime, the interplay of international financial institutions, the eurozone’s rigidity and domestic policies have produced various outcomes in the countries of the region. The study presents quantitative and qualitative research and offers new insights into the processes that shape the financial and monetary systems. The ex post analysis of how financial instability was created and how it could have been prevented, hopes to provide insights for policy-makers today.
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Financialization in CESEE Countries – The Story of Debt vs Equity

1. Introduction


← 246 | 247 → Tomislav Globan

Financialization in CESEE Countries – The Story of Debt vs. Equity

With the expansion of financialization and financial globalization, international capital flows have made capital more accessible to emerging and developing countries. This resulted in a surge in global capital flows during the 1990s and pre-crisis 2000s, which reached unprecedented levels. Countries of Central Eastern and South Eastern Europe1 (CESEE countries) are among the groups of emerging countries that have attracted largest inflows of foreign capital over the past two decades. After years of relatively low capital inflows, the transition from planned to market economies in the early 1990s indicated the beginning of the period of much higher capital inflows. Gradual capital account liberalization that has accompanied the convergence and integration of transition countries into the EU has proved especially stimulating for capital inflows. However, capital inflows can have both beneficial and detrimental economic implications if the host country is a small open economy, which became painfully obvious after the onset of the financial and economic crisis.

Types of capital flows can be distinguished by their characteristics, behaviour during financial crises and effects on balance of payments. Economic theory, as well as empirical research, emphasizes the higher probability for sudden stop or capital reversal episodes during financial crises in countries whose financial accounts rely more on investment based on debt (i.e. bank loans, portfolio investment in debt securities and intra-company loans), rather than equity flows (i.e. direct investment in equity capital...

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