FINANCIAL INTEGRATION AND MACROECONOMIC SUSTAINABILITY: A SECTOR APPROACH TO ACCESS TO FINANCE AND THE PRE-CRISIS GROWTH MODEL

We analyze the determinants of financial constraints in 18 transition countries in Europe on a dataset from the enterprise level survey provided by EBRD in four turns from 2002 to 2008. All these countries had in common the fact that prior to the crisis they had based their growth model on financial integration (EBRD, 2009). Examining in depth the financing obstacle to business may bring some genuine answers on financial development and its effects on the growth of the real sector. The main result of the empirical estimation using the probit methodology is that a higher probability of financial constraint exists for a manufacturing enterprises in contrast to other industries. Besides an increased probability of facing access to finance as a very severe business obstacle, the estimation also reveals that manufacturing firms have more need for loans. In addition, the firms not using bank loans are more prone to state high interest rates and non-favorable non-price loan terms as reasons for not using external financing. This finding inspired us to formulate a more general hypothesis on the role of the financial sector in the macroeconomic effects of the applied development model in transition economies during the period before the crisis. Namely, two decades of uneven access to finance by manufacturing businesses (producing tradable goods) resulted in structural imbalances in the real sector that reflected in trade deficit, i.e. the underdeveloped tradable sector and the overdeveloped non-tradable.