ECA noteworthy. The level of financial inclusion among

ECA already scored relatively high on financial
inclusion and access (frequency and ease of interaction with the financial
system by firms and individuals) so the benefits to further enhancements may be
smaller than through greater efficiency. The region may still increase growth
by adopting policies designed to advance financial access.


Financial development was positively associated with
economic growth n ECA. Higher-than-expected cumulative income growth and bottom
40 percent’s income was significantly associated with indicators of financial
development, categorized by depth, stability, efficiency, and inclusion.

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Excluding the impact of financial sector development,
the median annual gross domestic product (GDP) growth in the region, for the
period 2000-14, was 1.8 percent higher than indicated by the growth
fundamentals. This corresponded to the highest unexpected growth among the
developing regions, and is even greater than the unexpected growth in the
developed European countries.


The analysis in the second chapter of the study
highlights that ECA’s financial sector development stood to benefit inclusive
growth the most. Main messages included: (i) For inclusive growth, the most
important dimension of finance was the firm level access to finance, particularly
access to equity financing. Finance can effect income growth mostly by
enhancing allocative efficiency rather than mobilizing savings for investment.
(ii) Banking crises reduced medium-term growth in both the advanced European
Union (EU)
countries and Emerging ECA. Greater firm and individual level financial inclusion
can mitigate the busts in the cumulative growth in the course of banking
crises. However, for the bottom 40’s income growth, the mitigation factor is
not noteworthy.


The level of financial inclusion among firms was more
diverse. The number of financially constrained firms increased during the post
crisis period in several countries, and a lower share of firms had access to bank
financing or raised funds on the stock market in 2013 compared to 2019.


Banking overhead costs and cost-to-income ratios were
high across the region. Russia and Turkey have large market turnover rates,
showing their ease of capital market transactions compared to other ECA
sub-regions. Indicators of financial inclusion exceeded the global median in
many ECA countries with the exception of Central Asia and several indicators in
the South Caucasus and Other Eastern Europe. Savings remained very low across
the region.  Countries in Central Asia
showed very low levels of financial inclusion. 
For example, almost all adults in Slovenia had a bank account, in
Turkmenistan the level of account ownership was very low and improved only
slightly from 2011 to 2014. In Central Asia, adults with borrowings from a financial
intermediary compromise a very low share. The debit card usage was very common
in Central Europe but low in some countries in Central Asia and South Caucasus.
In addition, saving at a financial institution was higher in Central Europe.


Financial inclusion for the median country in Central
Asia, South Caucasus and other Eastern Europe was lower than the global median,
although theses sub-regions showed some improvement in recent years. Central
Europe had higher level of financial inclusion albeit with a decline in recent
years. Private credit by financial intermediaries and bank deposits are
relatively higher than the global median benchmark, for all sub-regions except
Central Asia, South Caucasus, and Other Eastern Europe. Stock market
capitalization to GDP has remained low for most sub-regions.


This paper compared the level of financial development
with the global median values. Indicators with a value greater than zero
indicated financial outcomes that were greater than the global median values.