Why Economic Freedom Matters in Determining Financial Stability: a Case Study on Six Eastern European Countries

Abstract

The down turning events from the beginning of the XXIst century, starting with the 2008 crisis and then the COVID-19 pandemic, shortly followed by Russia’s invasion in Ukraine, exacerbated some preexisting vulnerabilities and created new risks. In this context, the financial stability in the Eastern European states (we will consider "Eastern Europe" in Winston Churchill's terms, namely those countries on the eastern flank of the Iron Curtain) represents an important debating issue for both policy-makers and researchers. Therefore, the present paper aims to quantify the financial stability and to determine the factors that can influence it. In doing so, we first have to establish what we consider to be financial stability: what it means at the microeconomic level (focusing on the behavior of the citizens) and what it means at the macroeconomic level (looking at the role of states in ensuring financial stability). It is important to note that the analysis we wish to undertake will be at a regional rather than at an overall European level, focusing on the Eastern European countries that have joined the European structures. We will present, by means of statistical analysis, the importance that both economic freedom and education have in increasing the financial stability of Eastern European citizens, taking into account the evolution of the financial stability of Eastern European citizens over the last years. In order to perform an analysis for more countries and over a longer period of time, we will utilize panel data analysis. We will observe the role that both variables play in ensuring a greater level of financial stability for the people from these countries. UDC: 005.336:336.1(4-11); JEL: E10, F61, F62, I15; DOI: https://doi.org/10.53486/2537-6179.10-1.02