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.

Financial inclusion, financial stability and economic growth in developing countries

Abstract: The number of individuals and firms that have access and uses formal financial services provided by the mainstream financial sectors determines the performance of the financial sector of the economy; higher level of financial inclusion could automatically increase banking liquidity and hence provides more loanable funds for viable investments, the multiplier effect of this may positively influence the level of employment and reduce income inequality as well poverty. The present study has the overall objective of investigating the impacts of financial inclusion in sustaining financial stability and economic growth in developing countries.The first specific objective intends to examine the effect of migrant workers‟ remittance on financial inclusion in developing countries based on dynamic panel GMM estimation technique. In this objective 46 developing countries were selected and the time period of the study is 2004-2010. The empirical finding reveals that migrant workers remittances have positive and significant impact on financial inclusion in the sample countries.The result reveals that 1% increase in migrant workers remittance could increase financial inclusion by 0.067% in the sample countries. Migrant workers remittance therefore becomes an important financial inflow that stimulates financial sector development in the countries investigated.The second specific objective based on 52 developing countries for the time period of 2004-2010 also applied dynamic panel GMM estimation technique, the objective is to examine the effect of financial inclusion on financial stability in developing countries.The main empirical finding shows that financial inclusion positively influences financial stability, the result suggest that 1% increase in financial inclusion positively stimulates financial stability by 0.375%. This therefore emphasizes the relevance of higher access and usage of formal financial services in controlling the shocks of financial instability, hence financial inclusion stimulates the stability of the financial system.The third specific objective also applied dynamic panel GMM estimation technique across 48 developing countries for the period of 2004-2010; the objective is to investigate the impact of financial inclusion on economic growth in developing countries. The key impirical finding reveals that financial inclusion have positive and significant impact on economic growth in developing countries. The result highlight that 1% increase in financial inclusion could stimulates economic growth to increase by 0.132%, this finding confirmed the essential functions that access and usage of formal financial services plays in promoting the overall economic performance in developing countries. Therefore it is imperative from the policy perspectives to encourage uses as well as provide enabling policies and suitable environments for smooth accessibility of formal financial services considering its diverse positive effects on financial sector development as well as overall economic growth.

Openness and Financial Development in Central and Eastern European Countries

Abstract: Great numbers of countries have made the limitations loose on the transnational goods, services and capital flows and begun to follow a policy of export-oriented growth. Total value of global financial asset flows exceeded the value of global trade over time and financial markets have experienced considerable expansions in almost every country. This paper investigates the interaction between openness and financial development in 9 Central and Eastern European countries during 1996-2014 period employing cointegration test of Westerlund and Edgerton (2007) and causality test of Dumitrescu and Hurlin (2012). We reached that openness affected financial sector development positively in the long term. Furthermore, there was one-way causality from financial openness to financial sector development.

Inflation and financial sector development in Sub-Saharan African countries

Abstract: The purpose of this paper is to examine the link between inflation and the financial sector performance in Sub-Saharan African (SSA) countries.,The study analyzes the relationship between inflation and the financial sector performance for selected 22 Sub-Saharan countries from 1980 to 2013. The study used panel data and the dynamic panel generalized method of moments econometric method. The study concentrates on the link between inflation and the development of the banking sector.,The findings suggest that inflation does not promote financial sector development in SSA region while trade openness has a positive impact on the selected financial development indicators. Other variables that enhance financial development in SSA include government expenditure and good governance.,The main policy implication of the study is that in order for SSA countries to benefit from a deeper and more active financial sectors, the rates of inflation must be maintained low and be consistently under control. Also, for SSA region financial sectors to become deeper and more active it is crucial to develop stronger economic institutions including independent central banks and sound fiscal authorities.,The study differs from previous studies as it includes more (22) countries from SSA region while previous studies were either regional or country specific. The study also incorporates trade openness and the role of institutional quality in enhancing financial development. This differentiates the study from previous studies on the subject from the region.

Dollarization and Financial Development

Abstract: Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.

How to De-Dollarize Financial Systems in the Caucasus and Central Asia?

Abstract: Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development. Using dynamic panel data models, we find that foreign exchange deposits and loans in the CCA are mainly driven by volatile inflation and exchange rates, low financial depth, and asymmetric exchange rate policies biased toward depreciation. Although there is no unique formula for success, empirical studies and cross-country experiences suggest that credible monetary and exchange rate frameworks, low and stable inflation, and deep domestic financial markets are essential ingredients of any de-dollarization strategy. In implementation, policymakers need to consider proper sequencing of policies, effective communication as well as risks from potential financial disintermediation and instability, and/or capital flight.