Is public expenditure productive

Legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. Levine, Loayza, and Beck evaluate: Whether the level of development of financial intermediaries exerts a casual influence on economic growth. Whether cross-country differences in legal and accounting systems (such as creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental-variable procedures and recent dynamic panel techniques, they find that development of financial intermediaries exerts a large causal impact on growth. The data also show that cross-country differences in legal and accounting systems help determine differences in financial development. Together, these findings suggest that legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to understand the links between the financial system and economic growth. Thorsten Beck may be contacted at tbeck@worldbank.org.

Financial Intermediation and Growth: Causality and Causes

http://faculty.haas.berkeley.edu/ross_levine/Papers/2000_JME_Fin%20Int%20Growth%20Causality.pdf

Financial intermediation and growth: Causality and causes ☆

The ultimate ownership of Western European corporations

In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to the empirical claim that legal origins matter. Finally, we assess the implications of this research for economic reform.

/pdf/the-economic-consequences-of-legal-origins-3phhiol1rf.pdf

The Economic Consequences of Legal Origins

In 2003 China posted its highest economic growth rate in seven years, a robust 9.1 percent. Today the nation's gross domestic product (GDP) dwarfs by more than eight fold its level of 1978, the year China began taking its first tentative steps away from a centrally-planned communist economy towards a mixed socialist-market system. According to the World Bank, market reforms in China and the growth they have stimulated helped lift more than 250 million people from poverty (roughly equivalent to positively transforming the lives of the combined populations of England, France, Germany, and Italy). In 2003 China's per capita GDP surpassed the $1,000 mark for the first time in history. The greatest and most fundamental undertaking for China's financial reform over the coming years undeniably will occur in the banking sector. As with the situation throughout East Asia, businesses in China typically obtain external financing from banks rather than through the issuance of securities. Yet banking in China represents a glaringly fragile component in its economy. Poor lending policies of the past have produced a massive deadweight of nonperforming loans (NPLs). This article argues that investors and policy makers, while right to be concerned, would be patently wrong to ignore the tremendous upsides that should accompany China's banking reforms. Although now a soft spot in the Chinese economy, we contend that China's banking sector has the momentum and potential not only to be restored to health, but to play a catalytic role as a stimulant to further and sustained growth.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID548405_code376125.pdf?abstractid=548405&rulid=18547&mirid=5

Banking Reform in China: Catalyzing the Nation's Financial Future

Should commercial firms be prohibited from owning banking institutions? Should the United States remain the only G20 country opposed to the “mixing of banking and commerce”? These questions have assumed new urgency as the Dodd Frank Act of July 2010 imposed a moratorium on the commercial ownership of industrial loan companies (ILCs), which was the last remaining entry point for commercial firms into banking This paper specifically examines the role of ILCs in America’s financial system from its beginnings in 1910 to the present Special attention is paid to the performance of commercially owned ILCs prior to, during and after the most recent financial crisis The examination is based upon both survey data and Federal Deposit Insurance Corporation (FDIC) data, which represents a database of the ILC industry that is the most comprehensive one available to date The paper also reviews the laws and regulations regarding the mixing of banking and commerce, and discusses the advantages and disadvantages of allowing commercial ownership of banks

Industrial Loan Companies: Where Banking and Commerce Meet

Employee characteristics and firm size: are there systematic empirical relationships?

Deposit insurance schemes

This article examines the impact of foreign shareholdings on agency costs of Chinese firms from 2006 to 2012. The empirical results indicate that: (1) direct foreign shareholdings, in contrast to i...

James R. Barth

Papers

Banking Reform in China: Catalyzing the Nation's Financial Future

Industrial Loan Companies: Where Banking and Commerce Meet

Employee characteristics and firm size: are there systematic empirical relationships?

Deposit insurance schemes

On Foreign Shareholdings and Agency Costs: New Evidence from China