The Impact of the Global Financial Crisis on Southeastern European Economies

ABSTRACT: August 2007 signed the beginning of a new era, known as the Great Recession, and considered by many economists as the hardest financial crisis since the Great Depression of the 1930s. Being a global financial crisis, as its name implies, the Great Recession had global effects. However, different countries were affected at different levels. The aim of this thesis is to investigate the impact of the global financial crisis on a sample of four countries of Southeastern Europe: Albania, Bulgaria, Croatia and Romania. This investigation is done by using econometric models (Unit Root tests and Johansen Cointegration tests) by employing quarterly time series data from 1990 to 2009. In order to carry out the tests, the research identifies some possible transmission channels of the crisis by looking at empirical researches and theoretical approaches related with crisis. Once the variables have been identified as possible transmission channels, their significance on the growth of the four countries is measured in order to identify the degree of impact of the global crisis on the sample of Southeastern European countries. The results suggest that in Albania, exports and credit have been significant transmission channels of the global crisis. Interestingly, whereas FDI has a significant but negative impact on growth. In contrast, remittances have a positive but statistically insignificant impact on growth. For the case of Bulgaria, results show that all the variables included in the model are significant. Thus, exports, FDI, openness, remittances and credit are all statistically significant. In addition, all the variables, except openness, affect growth positively. Openness has an inverse relationship with growth. Being more integrated resulted in significant effects of global crisis in Bulgaria. In the case of Croatia, exports are found to be a significant transmission channel of the global crisis, whereas openness has a negative impact on growt. In the case of the new EU member, Romania, FDI, credit and remittances are found to be statistically significant, indicating that being more integrated increased the significance of the global crisis on the growth. The three of them have a positive effect on growth. Exports are statistically insignificant for the growth of Romania. These evaluations show how different crisis transmission channels affect the growth of different economies. It is expected that these findings will be an important source in developing policies that try to minimize the damage and costs of the global financial crisis. Keywords: Southeastern Europe, Global Financial Crisis, Foreign Direct Investment, Openness, Remittances. ……………………………………………………………………………………………………………………………………………………………………………………………………………………