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Showing papers on "Financial sector development published in 2002"


Journal ArticleDOI
TL;DR: In this paper, the authors investigate empirically whether firms in environments with more secure property rights allocate available resources more toward intangible assets and consequentially grow faster, finding that improved asset allocation due to better property rights has an effect on growth in sectoral value added equal to improved access to financing arising from greater financial development.
Abstract: The authors analyze how property rights affect the allocation of firms' available resources among different types of assets. In particular, they investigate empirically for a large number of countries whether firms in environments with more secure property rights allocate available resources more toward intangible assets and consequentially grow faster. The authors find that improved asset allocation due to better property rights has an effect on growth in sectoral value added equal to improved access to financing arising from greater financial development. The results are robust, using various samples and specifications, including controlling for growth opportunities.

746 citations


Journal ArticleDOI
TL;DR: In this article, the authors investigate whether firms' access to external financing, to fund growth differs between market-based, and bank-based financial systems, using firm-level data for forty countries, and compute the proportion of firms in each country that relies on external finance, and examine how that proportion differs across financial systems.

658 citations


Journal ArticleDOI
TL;DR: In this article, Grigorian and Manole estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries.
Abstract: Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be quite low. Grigorian and Manole estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. They further extend the analysis by explaining the differences in efficiency between financial institutions and countries by a variety of macroeconomic, prudential, and institutional variables. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that: -Foreign ownership with controlling power and enterprise restructuring enhance commercial bank efficiency. -The effects of prudential tightening on the efficiency of banks vary across different prudential norms. -Consolidation is likely to improve efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and may shed light on the optimal architecture of a banking system. This paper - a product of the Private and Financial Sector Development Unit, Europe and Central Asia Region - is part of a larger effort in the region to disseminate the results of research on transition issues. The authors may be contacted at dgrigorian@imf.org or manole@wueconc.wustl.edu.

532 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined the contribution of financial development to poverty reduction in low-income countries and reported that financial sector development policy can contribute to achieving the goal of poverty reduction.
Abstract: Empirical investigation of the link between financial development and economic growth has established that finance exerts a significant and positive influence on growth. This paper extends this line of analysis by examining the contribution that financial development makes to poverty reduction in low-income countries. The results reported support the contention that financial sector development policy can contribute to achieving the goal of poverty reduction in developing countries. Copyright © 2002 John Wiley & Sons, Ltd.

285 citations


Book ChapterDOI
TL;DR: A growing and deepening divide has opened up between transition countries where economic development has taken off and those caught in a vicious cycle of institutional backwardness and macroeconomic instability This divide is visible in almost every measure of economic performance: GDP growth, investment, government finances, growth in inequality, general institutional infrastructure and increasingly in measures of financial development.
Abstract: A growing and deepening divide has opened up between transition countries where economic development has taken off and those caught in a vicious cycle of institutional backwardness and macroeconomic instability This “Great Divide” is visible in almost every measure of economic performance: GDP growth, investment, government finances, growth in inequality, general institutional infrastructure and increasingly in measures of financial development Strategies for financial development have differed dramatically across countries and over time, offering interesting opportunities to study the links between real and financial sector development

266 citations


Journal ArticleDOI
TL;DR: The first decade of transition witnessed rapid and tumultuous financial sector development as discussed by the authors, and it is now widely accepted that the participation of foreign strategic investors in banking is an effective way of meeting these goals Capital market development is complicated by the need to support the development of institutional infrastructure and regulatory mechanisms while at the same time avoiding interfering in the markets.
Abstract: The first decade of transition witnessed rapid and tumultuous financial sector development. Although, few transition economies have reached the point where institutions and markets fulfill all the functions of market based financial intermediation, progress has been much more rapid than had been anticipated. In many countries, active market-oriented financial institutions function where there was only a state planning mechanism a decade ago. Initial experiences showed that bank privatization programs often failed to achieve independence from government control and from undesirable weak clients. It is now widely accepted that the participation of foreign strategic investors in banking is an effective way of meeting these goals Capital market development is complicated by the need to support the development of institutional infrastructure and regulatory mechanisms while at the same time avoid interfering in the markets. In many instances policy makers expected immature markets and institutions to accomplish unattainable goals. Equity markets cannot be effectively support mass privatization programs. There are still many missing pieces in virtually all of the transition country capital markets.

247 citations


Journal ArticleDOI
Tuuli Koivu1
TL;DR: In this article, the authors analyse the relationship between financial sector and economic growth in transition countries using a fixed-effects panel model and unbalanced panel data from 25 transition countries during the period 1993-2000.
Abstract: The relationship between financial sector and economic growth in transition countries has been largely ignored in the earlier empirical literature. In this paper, we analyse the finance-growth nexus using a fixed-effects panel model and unbalanced panel data from 25 transition countries during the period 1993-2000. We measure the qualitative development in the banking sectors using the margin between lending and deposit interest rates. Our second variable for the level of financial sector development is the amount of bank credit allocated to the private sector as a share of GDP. According to our results, the interest rate margin is significantly and negatively related to economic growth. This outcome is in line with theoretical models and has important policy implications. On the other hand, a rise in the amount of credit does not seem to accelerate economic growth. The main reasons behind this result could be the numerous banking crises the transition countries have experienced and the soft budget constraints that are still prevalent in many transition countries. Due to these specific characteristics the growth in credit has not always been sustainable and in some cases it may have led to a decline in growth rates.

169 citations


Journal ArticleDOI
TL;DR: In this article, the authors estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries.
Abstract: Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that (1) foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve the efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system.

146 citations


BookDOI
TL;DR: In this paper, the authors study the determinants of the growing migration of stock market activity to international financial centers and find that countries with higher income per capita, sounder macroeconomic policies, more efficient legal systems, better shareholder protection and more open financial markets tend to have larger and more liquid stock markets.
Abstract: The authors study the determinants of the growing migration of stock market activity to international financial centers. They use a sample of 77 countries and document that higher economic growth and more macroeconomic stability help stock market development. Countries with higher income per capita, sounder macroeconomic policies, more efficient legal systems, better shareholder protection, and more open financial markets tend to have larger and more liquid stock markets. The authors show that these factors also drive the degree with which capital raising, listing, and trading have been migrating to international financial centers. As fundamentals improve and technology advances, this migration will likely increase and domestic stock market activity may become too little to support local markets. For many emerging economies, the best policy is to establish sound fundamentals but not necessarily the trading, or even listing of securities locally.

109 citations


Journal Article
TL;DR: The authors provides an extensive review of growth, inequality and poverty reduction in the East Asian miracle economies, and suggests that the basic impetus for poverty reduction was robust economic growth, which was fostered by a conducive policy and institutional framework.
Abstract: This paper provides an extensive review of growth, inequality and poverty reduction in the East Asian miracle economies. This review suggests that the basic impetus for poverty reduction was robust economic growth, which was fostered by a conducive policy and institutional framework. This framework - which helped to create a 'level playing field' - encouraged high investment, production over diversion, and efficient use of investable resources

99 citations


Journal ArticleDOI
TL;DR: In this article, the authors review the impact of e-finance on the structure of and competition in financial services industries and highlight the need for changes in four financial sector policy areas, namely, safety and soundness, competition policy, consumer and investor protection, and global public policies.
Abstract: In recent years, the emergence of electronic finance—especially online banking and brokerage services, and new trading systems—has reshaped the financial landscape around the world. This paper reviews these developments and finds that they are greatly impacting the structure of and competition in financial services industries and will have a large impact on incumbents. Its assessment of how e-finance, and globalization more generally, affects countries highlights the need for changes in four financial sector policy areas—safety and soundness, competition policy, consumer and investor protection, and global public policies—to mitigate risks and reap as much as possible the potential benefits of e-finance.

Journal ArticleDOI
TL;DR: Li et al. as discussed by the authors studied the relationship between economic growth and financial development in China during the post-1978 reform period and found that the nonstate sector did not use the domestic financial system in any substantial way for financing.
Abstract: This paper studies the relationship between economic growth and financial development in China during the post-1978 reform period. Recent studies, based on cross-country data, have found a positive association between these two variables. We find that while a positive correlation between growth and financial intermediation exists in China, the association is more apparent than real. The nonstate sector, which contributed most to China's remarkable growth during this period, did not use the domestic financial system in any substantial way for financing. The same appears to be true for the faster-growing provinces. Compared to foreign investment, domestic private credit played a relatively small, although statistically significant, role in financing the nonstate sector and fast-growing provinces.

BookDOI
TL;DR: In this paper, the authors estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries and further extend the analysis by explaining the differences in efficiency between financial institutions and countries by a variety of macroeconomic, prudential, and institutional variables.
Abstract: Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be quite low. The authors estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. They further extend the analysis by explaining the differences in efficiency between financial institutions and countries by a variety of macroeconomic, prudential, and institutional variables. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that: 1) Foreign ownership with controlling power and enterprise restructuring enhance commercial bank efficiency. 2) The effects of prudential tightening on the efficiency of banks vary across different prudential norms. 3) Consolidation is likely to improve efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and may shed light on the optimal architecture of a banking system.

Journal ArticleDOI
TL;DR: In this article, an econometric model for analyzing the impact of financial development, money, and public spending on Malaysian national income is presented. But there is no noticeable support either for the monetary policy or for the fiscal policy effectiveness in case of Malaysia.

01 Dec 2002
TL;DR: The authors summarizes the results of recent professional studies on the impact of micro-finance, recognizing the difficulties of comparing studies that apply different levels of methodological rigor, and concludes that the difficulty of comparing the results is due to the difficulty in comparing studies with respect to different methodological levels of rigor.
Abstract: The international community has made a strong commitment to the Millennium Development Goals (MDGs). Many donor agencies want to know whether microfinance, or financial services for the poor, is an effective tool for reaching the MDGs. In response, Consultative Group to Assist the Poor (CGAP) launched a study of the empirical evidence on the poor's access to financial services and how this access supports the MDGs. This brief summarizes the results of recent professional studies on the impact of microfinance, recognizing the difficulties of comparing studies that apply different levels of methodological rigor.

MonographDOI
TL;DR: In this article, the authors present a collection of essays drawing on that accumulated experience and offering a wide perspective based on extensive real-world institutional experience on a wide range of the financial policy issues that are central in developing economies today.
Abstract: The dramatic events of the late 1990s, which followed a wave of financial crises going back to the early 1980s, brought to center stage the issue of financial sector policy in developing countries. Many recent books have presented a chronology and interpretation of the crises, but it is little apreciated that these financial sector problems had been brewing for decades and that a small number of scholars had long been evolving an approach to undertanding the structure and dynamics of these sectors. Spearheaded by a group led by Millard Long, the World Bank began studying more than 20 years ago the problems, risks, and policy solutions surrounding private finance. This volume contains a collection of essays drawing on that accumulated experience and offering a wide perspective based on extensive real-world institutional experience. They are a useful reader on a wide range of the financial policy issues that are central in developing economies today. They reflect also the evolving approach of the Bank's financial sector team and represent the knowledge that the team has accumulated over the years.

Journal Article
TL;DR: Chand et al. as discussed by the authors explored the relationship between financial sector development and economic growth in the Pacific island countries and found that the poor state of financial sectors has constrained the mobilisation of savings for growth and therefore restricted economic development in the region.
Abstract: This paper explores the relationship between financial sector development and economic growth in the Pacific island countries. The analysis suggests that the poor state of financial sectors has constrained the mobilisation of savings for growth and therefore restricted economic development in the region. Moreover, past policies to ‘assist’ financial sector development have been counterproductive. Alternative policy options to achieve the desired results are explored. Satish Chand is a Fellow with the Asia Pacific School of Economics and Management and the Research School of Pacific and Asian Studies, The Australian National University.

BookDOI
TL;DR: This paper found that regulatory characteristics that have been found to deepen a financial system and make it more robust to crises also appear to reduce the sector's ability to provide short-term insulation to the macro-economy.
Abstract: Whether and when does banking serve to stabilize the economy? The authors view the banking system as a filter through which foreign and domestic shocks feed through to the domestic economy. The filter can dampen or amplify the shocks through various credit market channels, including credit growth, import of foreign capital, and possibly interest rates. The question is whether the prudential quality of banking, as proxied by measures of regulatory quality and openness to foreign banking, amplify or dampen these shocks. The authors find that many of the regulatory characteristics that have been found to deepen a financial system and make it more robust to crises-notably those which empower the private sector-also appear to reduce the sector's ability to provide short-term insulation to the macro-economy. It is as if prudent bankers are reluctant to absorb short-term risks that, if neglected, might cause solvency and growth problems in the longer run. Forbearance might dampen short-term volatility, but at the expense of the longer run health of the banking sector and the economy. One way to avoid this apparent tradeoff is evident: banking systems which have a higher share of foreign-owned banks, a feature already associated with financial deepening and lowered risk of crisis, also seem to score well in terms of short-term macroeconomic insulation.

30 Jun 2002
TL;DR: The paper as discussed by the authors was prepared while the author was a professor of economics at the University of Osaka and a Visiting Scholar at the ADB Institute, and the author thanks Masaru Yoshitomi, Hidenobu Okuda, and anonymous referees for useful comments.
Abstract: This paper was prepared while the author was a professor of economics at the University of Osaka and a Visiting Scholar at the ADB Institute. Without implicating, the author thanks Masaru Yoshitomi, Hidenobu Okuda, and anonymous referees for useful comments. The views expressed in the paper do not necessarily represent those of the International Monetary Fund, the Independent Evaluation Office, or the ADB Institute.

Posted Content
TL;DR: In this article, the authors reviewed the e-finance (r)evolution in emerging, and other markets, and projected its future growth, and analyzed e-financing impact on the structure of, and competition in the financial services industry.
Abstract: In recent years, electronic finance, especially online banking, and brokerage services, has reshaped the financial landscape. This paper reviews these developments, and analyzes their implications for consumers, governments, and financial service providers. First, it reviews the e-finance (r)evolution in emerging, and other markets, and projects its future growth. It then analyzes e-finance impact on the structure of, and competition in the financial services industry. After that, it assesses how e-finance, and globalization more generally, affects financial sector policies in emerging markets, including the need for changes in the approach to financial sector development. The paper then examines governments' changing role in the financial sector, and identifies opportunities that e-finance offers countries to leapfrog. Finally, the paper includes for policymakers, and others involved in financial sector reform in emerging markets, detailed information, and Web links on public policy activities related to e-finance.

Posted Content
TL;DR: In this article, the authors present the results of a field experiment, designed to produce an empirical measure of risk aversion, and time preferences of selected groups in Chile, which in 1981 pioneered social security reform with a transition to individual retirement accounts.
Abstract: Financial sector development is a critical area of effective social protection policy. A well-regulated financial sector can complement government efforts to keep households from falling into poverty - by supplying the instruments needed to pool risks, or to self-insure against losses because of the death, or disability of a household member, unexpected loss of employment, or inability to work in old age. But many of the policy recommendations that can be drawn from the social risk management framework, rest on the strong assumption that risk, and time preferences are uniform across individuals, or households. Policies meant to encourage participation in public pension systems, and to reduce evasion where such systems are mandatory (by more closely aligning benefits with payroll contributions, or introducing individual retirement accounts) implicitly attempt to emulate the savings behavior of individuals, and households faced with fully functioning capital markets, and perfect information. If no allowance is made for variation in preferences, however, the welfare effects of policy reforms will vary across the target population. Mandated social security, even if actuarially fair for most, is likely to impose welfare losses on those less inclined to save, and insure. That said, a clearer picture of individual and household preferences, and how they vary across the population, can help governments design social security systems that complement private savings, and insurance instruments. The authors present the results of a field experiment, designed to produce an empirical measure of risk aversion, and time preferences of selected groups in Chile, which in 1981 pioneered social security reform with a transition to individual retirement accounts. The experiment was designed primarily to establish whether the time, and risk preferences of the self-employed differ significantly from those of wage, and salaried workers. They find no significant differences in mean risk, and time preferences between the self-employed, and employees, or between the contributing, and non-contributing employees. But they find significant differences in these preferences between the contributing, and non-contributing self-employed. Among the self-employed, those who are more patient choose to contribute to the pension system. However, the contributing self-employed are significantly more tolerant of risk than the non-contributing self-employed, a finding that conflicts with the assumption that the formal pension system is the only source of insurance against poverty in old age. The Chilean pension system may be viewed with some trepidation by its pool of potential clients. Since risk aversion declines with education, the participation of the economically active who are free to choose, could be enhanced by a campaign carefully designed to raise awareness, allay fears, and inform people of the benefits of saving for retirement in the formal pension system.

MonographDOI
30 Sep 2002
TL;DR: In this paper, the authors examine progress within Russia's financial sector and provide a road map for promoting dialogue on and implementing improvements, and support the joint strategic plan of Russia's government and Central Bank for banking reform, a plan that includes many already implemented legislative and regulatory efforts aimed at strengthening the Russian financial sector as a whole.
Abstract: This book examines progress within Russia's financial sector and provides a road map for promoting dialogue on and implementing improvements. The book is intended to complement and support the joint strategic plan of Russia's government and Central Bank for banking reform, a plan that includes many already-implemented legislative and regulatory efforts aimed at strengthening the Russian financial sector as a whole. The authors contend that any comprehensive strategy designed to enhance trust in Russian banking will need to focus on four major themes: 1) encouraging financial intermediation by improving the legal and accounting infrastructure for financial sector development; 2) improving the current structure and performance of the banking system; 3) improving the effectiveness of bank regulation, bank restructuring, and liquidation; and 4) enhancing enterprise access to finance.

Posted Content
TL;DR: In this paper, the authors used monthly data to analyze the phenomenon of currency substitution in Cambodia during the recent economic and financial reform process, 1993-2001, and found that there is a significant long run relationship between the expected rate of depreciation in market exchange rates and holdings of US dollars.
Abstract: The tendency to substitute domestic for foreign currency (as a way of holding wealth and a means of transaction for goods and services) is common throughout the world, and particularly so in countries attempting to overcome thin financial institutions or errant monetary policy. This paper uses monthly data to analyze the phenomenon of currency substitution in Cambodia during the recent economic and financial reform process, 1993-2001. Results show that there is a significant long run relationship between the expected rate of depreciation in market exchange rates and holdings of US dollars. The implications of this result for macroeconomic policy and broader financial sector developments in Cambodia are also examined.


Book
23 Dec 2002
TL;DR: In this paper, the authors reviewed the decade of rapid political, and economic transformation, where obstacles to reform had to be surmounted, namely, state-owned institutions' need to focus on regulation and oversight; an economic structure more focused on comparative advantage; production and distribution systems needed to undergo organizational, and structural changes; while the newly created financial sector struggled through regulation, amidst a weak authority, and complex federal system.
Abstract: The Country Assistance Evaluation (CAE) for Russia, covering the period 1992-2001, showed disappointing, but improving results for the Bank's activities in the Russian Federation. Despite unsatisfactory ratings during 1992-98, with only modest institutional development impacts, the Operations Evaluation Department (OED) rated the outcome satisfactory for the period 1998-01, and institutional development impacts as substantial. This paper reviews the decade of rapid political, and economic transformation, where obstacles to reform had to be surmounted, namely, state-owned institutions' need to focus on regulation and oversight; an economic structure more focused on comparative advantage; production and distribution systems' need to undergo organizational, and structural changes; while the newly created financial sector struggled through regulation, amidst a weak authority, and complex federal system. Yet, no major policy reversal occurred, and economic recovery is in place. The paper then examines from investment lending to the adjustment lending, with an improved portfolio performance as of 1999, where the question remains on the resilience of achievements to external shocks, particularly the drop of oil prices and other export commodities. Recommendations include assistance for reform, focused on further social consensus, with emphasis on public sector management, legal and judicial reform, investment and business climate, pension reform and labor market performance.

Book ChapterDOI
01 Jan 2002
TL;DR: In this article, the authors highlight the specific complexities of the financial business and the intense political as well as emotional sensitiveness attached to any major move in this area, and highlight that influential stakeholders such as politicians, government officials, business and media people tend to overestimate the real value of particular institutions and at the same time overemphasize their importance to the national economy.
Abstract: Financial sector development in Central and Eastern Europe has proved to be a very dramatic process characterized by some well-trumpeted success stories, but even more so by many unexpected collapses of seemingly decent institutions and some systemic meltdown as well. The overall record of transition in the area of financial sector development is much less impressive than achievements in macroeconomic stabilization, economic liberalization and privatization of formerly state-owned enterprises. There are several reasons for this. Among others I would highlight the specific complexities of the financial business and the intense political as well as emotional sensitiveness attached to any major move in this area. Influential stakeholders such as politicians, government officials, business and media people tend to overestimate the real value of particular institutions and at the same time overemphasize their importance to the national economy. In the absence of strong external and internal governance structures managers and at times also owners of banks, brokerages and insurance companies abuse this situation to increase their own influence and perceived importance. The story and history of financial sector development in most countries of Central and Eastern Europe in the first decade of transition ending 1999, therefore, has been an uphill struggle to restore reliable channels and prudent practices of financial intermediation – to create a new culture of trust and confidence against all odds of a dire legacy sometimes characterized by crime and corruption, cronyism and collusion.

Posted Content
Dimitri Vittas1
TL;DR: Vittas et al. as discussed by the authors argue that public and private pillars are essential for a well-functioning pension system and argue for the promotion, structure, and regulation of funded pillars.
Abstract: Vittas argues that public and private pillars are essential for a well-functioning pension system. Public pillars, funded or unfunded, offer basic benefits that are independent of the performance of financial markets. Since financial markets suffer from prolonged, persistent, and large deviations from long-term trends, they cannot be relied on as the sole provider of pension benefits. Funded pillars provide benefits that are based on long-term capital accumulation and financial market performance. But they need to be privately managed to minimize dependence on public sector institutions and avoid government dominance of the economy and financial markets. The author focuses mainly on the promotion, structure, and regulation of funded pillars. He discusses the case for using compulsion and tax incentives, for exempting some categories of workers such as the very young (under 25), the very old (over the normal retirement age), the very poor (those earning less than 40 percent of the average wage), and the self-employed, and for offering a credit transfer to be added to individual capitalization accounts to encourage participation by lower-income groups. A robust regulatory framework with a panoply of prudential and protective rules covering "fit and proper" tests, asset diversification and market valuation rules, legal segregation of assets and safe external custody, independent financial audits and actuarial reviews, and adequate disclosure and transparency would be essential. An effective, proactive, well-funded, and properly staffed supervision agency would be necessary. Tight investment rules could initially be justified for countries with weak capital markets and limited tradition of private pension provision. But in the long run, adoption of the "prudent expert" approach with publication of "statements of investment policy objectives" (SIPOs) would be preferable and more efficient. Various guarantees covering aspects such as minimum pension levels and relative investment returns need to be provided to protect workers from aberrant asset managers and insolvency of annuity providers, but care must be taken to address effectively the risk of moral hazard. Vittas also argues for greater individual choice, including the creation of a dual regulatory structure. One part would involve heavy regulation with constrained choice of investment funds, limits on operating fees and on account switching, and strong government safeguards and guarantees. This would cater to those workers with low risk tolerance. The other part would be more liberal but based on strong conduct rules. It would offer greater choice of investment funds, allowing multiple accounts and liberal account switching, imposing no limits on operating fees, and providing no or fewer state guarantees. This would cater to workers seeking a higher return and who are willing to tolerate a higher level of risk. This paper - a product of the Financial Sector Development Department - is part of a larger effort in the department to study the promotion of pension funds. The author may be contacted at dvittas@worldbank.org.

Book
01 Jan 2002
TL;DR: In this paper, the authors address the experience and perspectives of financial sector development in Central and Eastern Europe and discuss the role of the financial sector in Macroeconomic Adjustment Programmes.
Abstract: List of Tables List of Figures Acknowledgements PART I: KEYNOTE ADDRESS Experience and Perspectives of Financial Sector Development in Central and Eastern Europe L.Bokros PART II: THE GOVERNANCE OF BANKS IN EMERGING FINANCIAL SYSTEMS Is Foreign Control a Panacea? On Governance and Restructuring of Commercial Banks in Transition Economies C.Buch Refinancing Banks in an Unstable Financial Environment: The KfW Experience W.Neuhauss PART III: FINANCIAL CRISIS IN RETROSPECT Models of Financial Crisis? Can They Explain the 'Boom' of Financial Crises in Transition? Z.Arvai & J.Vincze Promoting Financial Development and Preventing Crisis: Lessons from Poland Z.Polanski The Role of the Financial Sector in Macroeconomic Adjustment Programmes G.Bell PART IV: FINANCIAL DEVELOPMENT IN EASTERN EUROPE: LOOKING AHEAD 'EU Accession Countries: What Path to a Successful EMU Membership?' P.Bofinger & T.Wollmershauser Financial Institution Building: Only a Drop in the Ocean? C.P.Zeitinger The Development of the Banking Sector in Eastern Europe: The Next Decade C.Hainz & M.Schnitzer Index

BookDOI
TL;DR: The authors of as discussed by the authors propose that small economies with a relatively high level of per capita income, minimum core of sound banks and insurance companies, sound and credible macroeconomic policies, and open capital accounts can benefit from the development of contractual savings.
Abstract: Countries with small financial systems are generally small economies with a reduced dimension of institutional relationships, a greater concentration of wealth, and a relatively less independent civil service. These characteristics facilitate concentration of functions and, more generally, weak governance. Only small economies with a relatively high level of per capita income, minimum core of sound banks and insurance companies, sound and credible macroeconomic policies, and open capital accounts can benefit from the development of contractual savings. This can increase the options to obtain sound coverage against contingencies, increase the supply of long term savings, promote financial deepening, and improve financial risk management.

Posted Content
TL;DR: This paper analyzed the relationship between financial sector and economic growth in transition countries using a fixed-effects panel model and unbalanced panel data from 25 transition countries during the period 1993-2000.
Abstract: The relationship between financial sector and economic growth in transition countries has been largely ignored in the earlier empirical literature.In this paper, we analyse the finance-growth nexus using a fixed-effects panel model and unbalanced panel data from 25 transition countries during the period 1993-2000.We measure the qualitative development in the banking sectors using the margin between lending and deposit interest rates.Our second variable for the level of financial sector development is the amount of bank credit allocated to the private sector as a share of GDP.According to our results, the interest rate margin is significantly and negatively related to economic growth.This outcome is in line with theoretical models and has important policy implications.On the other hand, a rise in the amount of credit does not seem to accelerate economic growth.The main reasons behind this result could be the numerous banking crises the transition countries have experienced and the soft budget constraints that are still prevalent in many transition countries. Due to these specific characteristics the growth in credit has not always been sustainable and in some cases it may have led to a decline in growth rates. Keywords: financial sector, transition economies, economic growth, panel data