Banking Sector Soundness, Innovation, and Development: Emerging Europe and South Asia. ACES Working Papers, 2012

While most academic and practitioner researchers agree that a country’s commercial banking sector’s soundness is a very significant indicator of a country’s financial market health, there is considerably less agreement and substantial confusion surrounding what constitutes a healthy bank in the aftermath of 2007+ financial crisis. Global banks’ balance sheets, corporate governance, management compensation and bonuses, toxic assets, and risky behavior are all under scrutiny as academics and regulators alike are trying to quantify what are “healthy, safe and good practices” for these various elements of banking. The current need to quantify, measure, evaluate, and compare is driven by the desire to spot troubled banks, “bad and risky” behavior, and prevent real damage and contagion in the financial markets, investors, and tax payers as it did in the recent crisis. Moreover, future financial crisis has taken on a new urgency as vast amounts of capital flows (over $1 trillion) are being redirected to emerging markets. This study differs from existing methods in the literature as it entail designing, constructing, and validating a critical dimension of financial innovation in respect to the eight developing countries in the South Asia region as well as eight countries in emerging Europe at the country level for the period 2001 – 2008, with regional and systemic differentials taken into account. Preliminary findings reveal that higher stages of payment systems development have generated efficiency gains by reducing the settlement risk and improving financial intermediation; such efficiency gains are viewed as positive financial innovations and positively impact the banking soundness. Potential EU candidate countries: Albania; Montenegro; Serbia

The European Union’s growing innovation divide. Bruegel Policy Contribution Issue 2016/08 April 2016

There is a significant divide between the European Union countries with the greatest capacity to innovate, and those with the least capacity to innovate. The difficult convergence process has been proceeding only very slowly and unevenly, and more recently seems to have come to a halt. A particular weak spot for the EU is corporate investment in research; in this area, the intra-EU divide is growing. As the business sector is responsible for the persistent R&D intensity gap between the EU and the United States and Asia, the persistent failure of lagging EU countries to catch up in this area provides much of the explanation for the EU’s weak performance compared to other economies. The evidence shows that the deployment of public budgets and the mix of policies employed by EU member states have tended to aggravate the intra-EU divide. The EU needs to better understand its growing internal innovation divide if it is to achieve its ambition of becoming a world innovation leader.