Showing papers on "Financial sector development published in 2001"
TL;DR: The overall impact of financial globalization on the domestic financial sector is profound as mentioned in this paper, and the consequences have not been uniformly favorable, as domestic interest rates in developing countries have moved to a premium over industrial country rates, and can surge at times of currency speculation.
Abstract: The overall impact of financial globalization on the domestic financial sector is profound. Liberalization of capital flows has effectively made domestic financial repression obsolete. The consequences have not been uniformly favorable. Following liberalization, domestic interest rates in developing countries have moved to a premium over industrial country rates, and can surge at times of currency speculation. Heightened interest rate and exchange rate volatility pose practical risk management difficulties for financial intermediaries and reinforce the need for appropriate infrastructures and incentives for risk containment, as well as for good macropolicies. On the other hand, the cost of equity capital has been reduced by allowing foreign investor access to local equity markets and allowing local firms to list abroad. Increased international flows through the equity markets have not been the major contributor to increased international sources of volatility. In addition to opening access to foreign-sourced financial services, more and more countries have been permitting foreign-owned banks and other financial firms to operate locally. Although this can represent a threat to domestic owners of financial firms, the drawback is outweighed by improved service quality. On all three fronts--debt, equity, and services--the costs and risks as well as the benefits of increased financial globalization. knowledges
299 citations
TL;DR: The role of financial sector development in economic growth has become a major topic of empirical research in just the last ten years as mentioned in this paper, and there is an emerging consensus about the role of the financial sector in growth.
Abstract: The role of financial sector development in economic growth has become a major topic of empirical research in just the last ten years. A standard approach to explaining growth has emerged and the literature has examined the role of the aggregate amount of financial intermediation, bank lending and the influence of equity market development. More recently, the literature has examined aspects of institutional development and infrastructure on growth. Despite the econometric difficulties encountered, there is an emerging consensus about the role of the financial sector in growth. Panel data sets have produced impressive results but they are often fragile. Estimates with recently developed dynamic panel techniques have provided additional evidence. This paper summarizes the consensus and discusses the techniques that have been used and the problems encountered.
254 citations
TL;DR: In this paper, the authors extend the recent literature on the link between financial development and economic volatility by focusing on the channels through which the development of financial intermediaries affects economic volatility.
240 citations
TL;DR: In this paper, the authors examined the effect of different design features of deposit insurance on long-run financial development, defined to include the level of financial activity, the stability of the banking sector, and the quality of resource allocation.
Abstract: The authors examine the effect of different design features of deposit insurance, on long-run financial development, defined to include the level of financial activity, the stability of the banking sector, and the quality of resource allocation. Their empirical analysis is guided by recent theories of banking regulation, that employ an agency framework. The authors examine the effect of deposit insurance on the size, and volatility of the financial sector, in a sample of fifty eight countries. They find that generous deposit insurance, leads to financial instability in lax regulatory environments. But in sound regulatory environments, deposit insurance does have the desired impact on financial development, and growth. Thus, countries introducing a deposit insurance scheme, need to ensure that it is accompanied by a sound regulatory framework. Otherwise, the scheme will likely lead to instability, and deter financial development. In weak regulatory environments, policymakers should at least limit deposit insurance coverage.
120 citations
TL;DR: In this article, the authors analyze the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discuss the related implications for regulation and supervision.
Abstract: This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experience demonstrate the importance of competition for efficiency and confirm that a competitive environment requires a contestable system meaning one that is open to competition-but not necessarily a large number of institutions. A competitive banking system can improve the distribution of consumer credit, enhance the corporate sector's access to financing, and mitigate the risks of financial crises. In an open market, in which services and products are provided in response to market signals, financial institutions respond by offering a wider scope of financial services. The optimal institutional design for supervisory functions is less obvious. This article reviews alternative frameworks for financial services markets from an economic perspective using experiences in several countries as a guide. Authors focus first on the role of competition in the financial sector and the tradeoffs between competition on the one hand and stability and innovation on the other. Authors next examine alternative structures of financial services dictated in many countries.
97 citations
TL;DR: In this paper, the authors evaluate the contribution of housing policy in Singapore to financial sector development, housing wealth formation and macroeconomic performance, both retrospectively and prospectively, and provide an overview of past housing policies and traces the linkages to the financial sector.
Abstract: This paper evaluates the contribution of housing policy in Singapore to financial sector development, housing wealth formation and macro-economic performance, both retrospectively and prospectively. It provides an overview of past housing policies and traces the linkages to the financial sector. Housing policy as effected through the Housing and Development Board and the Central Provident Fund (CPF) hampered the development of the commercial housing loans sector and domestic financial markets, but contributed to the overall growth and stability of the housing loans market and associated financial institutions. Housing policy and the trend of housing asset inflation contributed significantly to the formation of both gross and net housing wealth. Economic growth has not suffered from the heavy emphasis on housing investment although various policies that resulted in exogenous shifts in housing demand contributed to increased housing price volatility in the short term. The structure of the housing loans mark...
85 citations
TL;DR: In this paper, the authors consider the evidence from one country, New Zealand, which has in recent times been subject to substantial economic reforms, not least in the financial sector, and find valid long-run relationships are found between indicators of both banking and stock market development and private savings.
Abstract: Most of the empirical evidence on how development of the financial sector impacts on economic growth is in a cross-country context. This paper considers the evidence from one country, New Zealand, which has in recent times been subject to substantial economic reforms, not least in the financial sector. Some valid long-run relationships are found between indicators of both banking and stock market development and private savings, but rather more mixed results when considering either real GDP per capita or its growth rate.
84 citations
TL;DR: This article examined the interaction between the growth-inflation and growth-finance relationships, and found that the relationship between the two factors is a function of the extent of financial sector development.
Abstract: The last decade saw an explosion in research interest on economic growth. In particular, there have been a large number of thorough empirical investigations of the differences in growth rates among countries over long periods of time. These studies tend to emphasize particular aspects or causes of the growth process. Among the important correlates of economic growth that have been studied are inflation and the extent of financial sector development. In this paper we examine the interaction between the growth-inflation and growth-finance relationships.
84 citations
TL;DR: In this article, the authors performed a cross-country growth regression for the 1970-1998 period and found evidence for the fact that the impact of policy uncertainty on economic growth depends on the development of the financial sector.
Abstract: By performing a cross-country growth regression for the 1970-1998 period this paper finds evidence for the fact that the impact of policy uncertainty on economic growth depends on the development of the financial sector. It appears that a higher level of financial development partly mitigates the negative impact of policy uncertainty on economic growth. This clearly indicates the relevance of financial sector development.
48 citations
TL;DR: The authors examines the factors that influenced, and will influence, the adaptation of ECA's financial systems, starting from an examination of how the global financial system--especially the Western European component--has evolved, and how these developments have both influenced and challenged different types of transition economies.
Abstract: The financial sectors of the post-communist economies of Europe and Central Asia are perhaps where the most intractable problems existed and where the most difficult reforms were forced to begin. This report examines the factors that influenced, and will influence, the adaptation of ECA's financial systems, starting from an examination of how the global financial system--especially the Western European component--has evolved, and how these developments have both influenced and challenged different types of transition economies. The report also provides an opportunity to take stock of progress in the financial systems of ECA countries over the past 10 years and to identify the main challenges confronting financial policymakers during this period.
30 citations
TL;DR: The authors studied the relationship between firm's financing choices and financial globalization using an East Asian and Latin American firm-level panel for the 1980s and 1990s and found that debt maturity shortens for the average firm when countries undertake financial liberalization.
Abstract: This paper studies the relation between firm's financing choices and financial globalization. Using an East Asian and Latin American firm-level panel for the 1980s and 1990s, we study how leverage ratios, debt maturity structure, and sources of financing change when economies are liberalized and when firms access international capital markets. We find that debt-equity ratios do not increase after financial liberalization. Debt maturity shortens for the average firm when countries undertake financial liberalization. However, domestic firms that actually participate in international capital markets extend their debt maturity. Financial liberalization has less effects on firms from countries with more developed domestic financial systems. Leverage ratios increase during crises.
TL;DR: An exhaust mixer for a turbofan aeroengine can be classified as being of the multi-lobed type, with troughs between the lobes with good mixing efficiency together with good aerodynamics, short axial length and low weight.
Abstract: The paper analyzes the provision of electronic financial services in countries, the impact of e-finance on the financial systems, and the leapfrogging opportunities for emerging markets. The authors address new policy issues and the role of government intervention in the light of these developments. Special focus is given to models of financial sector development that enable and promote e-finance in banking, capital markets, insurance, housing finance and microfinance areas, drawing on innovative applications from the industrialized and the developing world.
TL;DR: This paper reviewed current thinking on the relationship between financial development and poverty alleviation, a subject that has grown increasingly important in the policy prescriptions of the IMF and other international financial institutions in recent years.
Abstract: This paper reviews current thinking on the relationship between financial development and poverty alleviation-a subject that has grown increasingly important in the policy prescriptions of the IMF and other international financial institutions in recent years Although work on this issue is far from over, some important lessons can be learned from the existing evidence The paper reflects on these lessons and looks at some of the policy implications of the analysis
TL;DR: In this article, the authors present an analytical discussion and empirical evidence of the relationship between financial sector development and economic growth among Central and Eastern European countries, using monthly data, and show that depending on the time period and sub-sample the correlation of financial development with economic growth can be negative or positive.
Abstract: This paper presents an analytical discussion and empirical evidence of the relationship between financial sector development and economic growth among Central and Eastern European countries. Theoretical views allow for the complex relationship between the financial sector development and economic growth. Empirical evidence is presented that depending on the time period and sub-sample the correlation of the financial development with economic growth can be negative or positive. Using monthly data the causality (in Granger sense) of this process is addressed - the causality can run one way or the other, depending on the particular country.
TL;DR: In the early 1970s, it was generally believed that low interest rates on bank loans and deposits would promote investment spending and growth, a notion consistent with the Keynesian and neoclassical analyses where the interest rate is part of the cost of capital as mentioned in this paper.
Abstract: I. Introduction A well functioning financial system can play an important role in economic development by facilitating capital formation, which in turn promotes economic growth.(1) A higher rate of growth is, in turn, a necessary condition for alleviating poverty in a market economy where major wealth or income redistribution may be difficult to achieve (Jain and Tendulkar 1990). Financial sector development or "deepening" involves the design and implementation of policies to intensify the degree of monetization of the economy through increased access to financial institutions, their transparent and efficient functioning, and ensuring reasonable rates of return in real terms. The banking sector tends to dominate the financial system in most developing countries and is, therefore, the focus of this article. Until the early 1970s, it was generally believed that low interest rates on bank loans and deposits would promote investment spending and growth -- a notion consistent with the Keynesian and neoclassical analyses where the interest rate is part of the cost of capital (see Keynes 1936 and Jorgenson 1967, respectively). McKinnon (1973) and Shaw (1973) challenged this conventional wisdom. They argued that higher interest rates increased the amount people are willing to hold as financial assets by decreasing the holdings of non-financial assets such as cash, gold, commodities, and land. An additional channel through which the same effect might materialize would be by increasing the holdings of domestic assets relative to foreign assets. The domestic financial system would consequently be able to extend more loans to investors, hence raising the equilibrium rate of investment.(2) This is further enhanced if the cost of intermediation by banks is kept low by having a competitive banking structure and minimal taxation on financial intermediation. Thus, McKinnon-Shaw argued strongly in favour of "financial liberalization". Motivated at least partly by their work, many developing countries have undertaken financial liberalization, though the timing, pace and sequencing have varied quite significantly. The outcome of these reforms has been mixed at best. While financial liberalization produced improved economic performance in some countries, it also led to financial distress and crises in many others.(3) This mixed outcome has led to a reassessment of the case for financial liberalization. The "neo-structuralist" economists have argued that higher bank interest rates lead to higher bank deposits simply due to the transfer of funds away from alternative asset holdings (Taylor 1983), such as the informal credit markets (Edwards 1988; van Wijnbergen 1982) or share markets. They also argued that some of these, such as the informal credit markets, might be a more efficient means of financing investment since institutions in these markets are essentially unregulated and do not need to hold reserves (as banks do). Thus, according to the neo-structuralists, raising interest rates on bank deposits would decrease, rather than increase, the rate of capital formation in the economy. However, Kapur (1992) and Bencivenga and Smith (1992) have shown that the argument about the greater efficiency of the informal sector due to the lack of a formal reserve requirement is not valid if the central bank makes proper use of the banks' reserves, thereby ensuring that the reserves do not bear a social cost. This implies that as long as a part of the additional assets entering the banking sector are from non-financial or foreign assets, raising bank interest rates (to market clearing level) would be desirable.(4) In this article we estimate econometrically the main factors affecting the financial deepening in four Asian economies, namely, South Korea, Malaysia, Thailand, and Indonesia. The choice of the countries was based on: their exemplary investment and growth rates from the mid-sixties to the mid-nineties that has evoked considerable interest in their development experiences, and the financial crisis of 1997-98 which has evoked interest in them for somewhat different reasons; and their having experienced a wide range of real interest rates and real exchange rate variations, which makes it possible to analyse the impact of these variables. …
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01 Jan 2001
TL;DR: In this paper, the authors discussed the link between FEER and fiscal policy in a transitional period in the Czech economy and discussed the economic development in transition economies in Central and Eastern Europe.
Abstract: Financial integration between the EU and the economies of Central and Eastern Europe - an overview, David G Dickinson and Andy Mullineux Part 1 Monetary and exchange rate policy: monetary policy and economic development in transitional economies, Maxwell J Fry the Czech approach to inflation targetting, Miroslav Hrncir and Katerina Smidkova the link between FEER and fiscal policy in a transitional period - the case of the Czech economy, Katerina Smidkova interest rate policy and inflation behaviour in the Czech Republic - from exchange rate to inflation targeting, Eric Gigardin and Nick Horsewood Latvia on the way to European Union - economic policy convergence, Inna Steinbuka monetary policy prospects and Maastricht criteria in Lithuania during the pre-accession to EU period, Salomeja Jasinskaite et al the currency board regime in Bulgaria and its sustainability, Tatiana Houbenova EMU convergence criteria and international flows of capital - the dilemmas for Polish macroeconomic policy, Boguslaw Grabowski and Jerzy Pruski the Asian financial crisis and lessons for CEE economies, David G Dickinson and Andy Mullineux joining EMU as an irreversible investment, David G Dickinson and Jean-Baptiste Desquillet Part 2 Financial sector development: financial stability and economic development in transitional economies, Maxwell J Fry payment systems and economic development in transitional economies, Maxwell J Fry mobilization of savings in transition countries - the case of Lithuania, Dalia Vidickiene et al the Polish banking sector and EU regulations, Andzej Raczko banking structure restructuring and debt consolidation in the Czech Republic, Roman Matousek market efficiency in transition economies - equity markets and EU accession, Nick J Horsewood and Douglas Sutherland risk and optimal interest margins - the case of commercial banks in Central Europe, Daniel Goyeau et al the impact of market structure and efficiency on bank profitability - an empirical analysis of banking industries in Central and Eastern Europe, Celine Gondat Larralde and Laetitia Lepetit convergence of the banking systems in transition economies within and outside the European Union, Victor Murinde et al
01 Jan 2001
TL;DR: In this article, a critical review of different strands of literature, the authors show that financial dualism pervades the financial systems of low-income countries and that despite attempts to dislocate the informal financial sector, it still thrives reflecting preferences of users reluctant to abandon it in the face of introduced subsidised credit and institutions that clothe some of their attributes like social capital, peer pressure, etc.
Abstract: Financial dualism, entailing the coexistence of the formal and informal financial sectors, describes the financial sectors of low income countries (LICs) as explained by the strands of arguments under financial repression, the dualism of their economies and other factors. By a critical review of different strands of literature, the paper shows that financial dualism pervades the financial systems of these countries. Despite attempts to dislocate the informal financial sector (IFS), it still thrives reflecting preferences of users reluctant to abandon it in the face of introduced subsidised credit and institutions that clothe some of their attributes like social capital, peer pressure, etc. It has served the financial needs of the majority in LICs flexibly over time and is not any less important than the formal. The paper recommends strengthening it to satisfy the financial needs of those sectors of the economy which it has served. New developments should not abate its neglect, but rather strive to improve its working environment by incorporating it in their plans.
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TL;DR: In this article, the authors show that large gaps have opened up between the transition countries in terms of the real income rises the have achieved since 1989, and that this can be traced to inadequate corporate governance.
Abstract: Large gaps have opened up between the transition countries in terms of the real income rises the have achieved since 1989. Since phases of hyperinflation are a thing of the past in nearly all of the reforming countries, and the private sector has established itself as the largest contributor to every country's gross domestic product, stabilization and privatization can largely be discounted as likely causes of the differences in economic performance. Macedonia, for instance, has rigorously implemented a set of conventional stabilization policies, but its growth performance is rather disappointing. An analysis of the development of its private sector and financial system shows that this can be traced to inadequate corporate governance. Hence, Macedonia can be regarded as an example which demonstrates that corporate governance arrangements play a key role in explaining the overall performance of the transition economies.
TL;DR: Meigas et al. as discussed by the authors examined the role of Sweden's development-oriented equity investment (DEI) to Baltic banks in the context of the World Bank programs and concluded that DEI is well suited for the task of improving corporate governance.
Abstract: Over the past 10 years the three Baltic republics have undertaken significant restructuring of their banking sectors, supported by the World Bank through three projects: the Financial Institutions Development Project in Estonia, the Enterprise and Financial Sector Restructuring Project in Latvia, and the Enterprise and Financial Sector Project in Lithuania. These projects included a credit line, channeled through local commercial banks, to provide long-term funding and complementary technical assistance to private enterprises. In parallel, the government of Sweden injected equity into the commercial banks from Swedfund Financial Markets (SFM). The projects and the accompanying Swedfund equity were aimed at promoting sound banking systems in the three Baltic countries-by strengthening the equity in the banks and thereby expanding medium- and long-term financing. Meigas examines the role of SFM-which provides development-oriented equity investment (DEI) to Baltic banks-in the context of the World Bank programs. She examines the arguments for deploying DEI as a development vehicle by gauging its impact in the three Baltic countries on banking skills and services, on capitalization, and on shareholder structure and board membership. She draws out the role of technical assistance and compares its impact with that of DEI, and explores the possibilities offered by DEI for imposing sound corporate governance. The author also describes the necessary ingredients for successful DEI. The author's analysis shows that the Baltic projects were valuable initiatives that could in principle be replicated in other transition or developing economies whose banking sector faces serious restructuring challenges. A development-oriented equity investment, like that made by SFM, can address the important deficiencies in a banking sector that is still in a rudimentary state, lacking both capital and banking skills. SFM's most effective tool was the imposition of sound corporate governance on the institutions that received the equity injection. This approach provided a powerful supplement to the banking supervisory functions. Rather than relying on the external enforcement power of state supervision, SFM targeted internal processes to change business practices. As a result, the DEI led to improvements in the corporate culture and broader risk management and thus in the quality of banking services-not only meeting the institutional development objectives but also ensuring an adequate return on the invested capital. The potential of good corporate governance for easing the work of banking supervisors has been stressed by the Basle Committee on Banking Supervision. This potential is particularly valuable in countries still developing the supervisory function, and DEI, the author argues, is well suited for the task of improving corporate governance.
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TL;DR: In this paper, the authors present an analytical discussion and empirical evidence of the relationship between financial sector development and economic growth among Central and Eastern European countries, using monthly data, and show that depending on the time period and sub-sample the correlation of financial development with economic growth can be negative or positive.
Abstract: This paper presents an analytical discussion and empirical evidence of the relationship between financial sector development and economic growth among Central and Eastern European countries. Theoretical views allow for the complex relationship between the financial sector development and economic growth. Empirical evidence is presented that depending on the time period and sub-sample the correlation of the financial development with economic growth can be negative or positive. Using monthly data the causality (in Granger sense) of this process is addressed - the causality can run one way or the other, depending on the particular country.
Book•
01 Jan 2001
TL;DR: Kalyuzhnova et al. as mentioned in this paper developed market institutions in Transitional Economies and developed a supervisory capacity in the transition Economies with the aid of international standards.
Abstract: Dedication List of Tables and Figures Foreword List of Abbreviation Notes on the Contributors Introduction Y.Kalyuzhnova & M.Taylor Developing Market Institutions in Transitional Economies A.Shrivastava PART I: THE DEVELOPMENT OF THE BANKING SECTOR Bad Loans as Alternatives to Fiscal Transfers in Transition Economies G.Tridimas Banking Transformations in Poland K.Szymkiewicz PART II: NON-BANK REFORMS AND DEVELOPMENT OF FINANCIAL SECTOR Development of Capital Markets, Stock Exchanges and Securities Regulation in Transition Economies J.Norton & D.Arner The Romanian Accounting Reforms: Another Case of Cultural Intrusion? A.Roberts Reforming Pension System in Transitional Economies: Case Study Kazakhstan Y.Kalyuzhnova PART III: SUPERVISION AND REGULATION OF FINANCIAL MARKETS International Standards and the Transitional Economies D.Arner Building Supervisory Capacity in the Transition Economies M.Taylor Conclusion Y.Kalyuzhnova & M.Taylor Index