Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.

Building trust : developing the Russian financial sector

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.

Financial Inclusion and Development in the CEMAC

Abstract: This paper examines financial inclusion and development in the CEMAC. We explore the level of financial inclusion in the CEMAC through a benchmarking exercise.We construct a measure of financial development gap and analyze its determinants. Using panel data regressions, we find that inflation, income, and natural resources explain most of the financial development level but that better financial sector governance and stronger economic governance are positively associated with financial sector development. Richer and poorer countries can be equally far from their expected financial development levels. Finally, we use a benchmarking exercise to identify countries that have successfully reduced the financial development gap and propose policy measures that CEMAC countries could use to boost financial inclusion.

Is Financial Development a Factor to the Leading Growth Profile of the South African Economy? Measuring and Uncovering the Hidden Secret

Abstract: This paper investigates the factors contributing to the formidable growth rate of the South African economy. Specifically, we determine whether the leading role of the South African economy in the Sub- Saharan African region is a result of its sophisticated and resilient financial sector development. If not, the paper tries to identify the possible explanations for the country’s economic growth profile in recent times. From a series of empirical findings, the paper assesses the factor(s) that could impede the overall growth profile of the country’s economy in both the long-run and the short-run. To do this, we measure the shortrun and long-run impacts of financial development on economic growth of the South African economy, and we also investigate whether the relationship between financial development and economic growth is monotonic or not. The study employs time series data from 1980 to 2011 and uses the ARDL bounds-testing approach to cointegration and the U test of Mehlum and Sasbuchi. The study reveals that trade openness and the ratio of credit issued to the private sector by banks to GDP have fuelled South Africa’s economic growth in both the long-run and the short-run. Similarly, the U test also discovered that the relationship between financial development and GDP growth in the country is non-monotonic. Surprisingly, M3 has a short-run negative influence on GDP while the greatest and most crucial long-run factor that has impeded the accumulated growth profile of the South African economy is the low productive contribution of the country’s population to GDP. This study explores new insights for policy makers in South Africa.

Macroeconomic Variables, Financial Sector Development and Capital Structure of Indian Private Corporate Sector during the Period 1981-2007

Abstract: IntroductionIn a perfect and frictionless capital market, the financing decisions of firms have no effect on the shareholders' wealth (Modigliani and Miller, 1958). But the economic world imagined by Modigliani and Miller hardly exists in reality and the capital structure choices do affect the value of the firms. The determinants of capital structure are: firm, industry and country-specific. Even the integration of the economy of a country with the world economy is also expected to affect the factors which ultimately influence the costs of different forms and sources of financing, the value of the firm, and capital structure.In the initial stage of economic development, agriculture dominates the economy. Since at this stage, agriculture and other economic sectors use simple technologies, information about different economic units can be collected and analyzed very easily. Banks can play an important role in intermediating funds. So, at this stage, firms depend more on funds borrowed from banks and other financial institutions, and so the debt-equity ratio of the firms increases. As the economy progresses further, the share of agriculture in economic activities decreases and the share of industry and services increases. Economic units start using more complex technologies and need more funds which cannot be adequately met by the banking sector alone. The projects use more complex technologies, have long gestation periods and need to be implemented properly. So, for the purpose of evaluating the projects and ensuring the safety of the investments, these projects need continuous monitoring. Instead of a few bankers, a large number of investors who are well dispersed can do this job well. The costs associated with collection and processing of information by market participants may be higher than the costs which may be incurred by a few bankers, but the market, as a whole, is expected to collect information which is relevant and process it more accurately, and so banking sector alone may not be able to ensure efficient allocation of resources. Moreover, as the economy expands, the demand for external funds also increases and the banking sector alone may not be able to meet the entire requirement of funds of the economy. As a consequence, firms are expected to retain more profits or raise funds from new issues market. At the second stage of economic development, stock markets develop relative to banking sector and the debt-equity ratio of firms falls.As the economy develops further, the share of agriculture in the economy falls further and the informational efficiency of the capital markets increases further relative to banks. Besides stock markets, corporate debt markets also develop. Thus, firms will have opportunities to raise debt from the market and/or borrow from banks. The increasing dominance of market would reflect more in the choice of raising funds from market (both stock and debt) or borrowing from bank than in the amount of financial leverage (Rajan and Zingales, 1995). In a semi-strong form of efficient capital market, firms prefer internal funds; and if external funds are needed, firms issue secured debt first, then they issue convertible securities and equity shares as a last resort (Myers, 2001). So, financially constrained efficient firms having profitable projects raise secured debt first from the market, and the debt-equity ratio of such firms increases. But for efficient firms having sufficient internal funds, debt-equity ratio falls because firms maintain stable dividend payout ratio. In spite of firms' preference for internal funds and secured debt which is raised from the market, economic growth and expansion contribute to the increase in the business for banks. In the third stage of economic development, both stock and debt markets develop relative to banking sector and firms raise funds from capital market (both debt and equity share capital), instead of borrowing from banks.Financial leverage of firms is expected to depend on firm-specific characteristics too. …

Does Nepal's Financial Structure Matter for Economic Growth?

Abstract: Despite causality debate, a number of empirical literatures (Pagano, 1993 and Levine, 1997, among others) suggest a positive relationship between financial sector development and economic growth. Moreover, there remains further debate whether the country's financial structure exerts differential impact on economic growth. Empirical studies across the countries (Rajan and Zingales, 1999 and Arestis et. al. 2004) suggest that banking sector plays a key role in some countries while the capital market has a lead position in others for enhancing economic growth. In this context, this paper investigates the relative merits of banking sector vs. capital market in promoting economic growth in Nepal. The empirical results using Johansen's cointegrating vector error correction model based on aggregate annual data from 1993/94 to 2010/11 suggest that banking sector plays a pivotal role in promoting economic growth compared to capital market in Nepal. The role of capital market seems to be insignificant. It may be either the size of market is too small to seek the relationship or it is weakly linked to real economic activities. Our result is consistent with the earlier findings in other countries and it has two important implications. First, the policy should focus on banking sector development by enhancing its quality and outreach as it promotes economic growth. Second, in line with the banking sector, the scope of capital market should be further expanded to real economic activities to channelize its impact on growth.