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.

West African Financial Sector Development: Empirical Evidence on the Role of Institutional Quality and Natural Resource Rents

Abstract: The paper examines the effect of natural resource rents and institutional quality on financial sector development in West Africa. Using pooled OLS, fixed effect and system generalized method of moments (GMM) estimations with several robustness checks, the results indicate that natural resource rents have an adverse effect on financial development. Further evidence shows that institutional indicators, based on control of corruption, rule of law and government effectiveness, positively influence financial sector development. In contrast, the interaction of natural resource rents with various institutional measures consistently alters the relationship. Thus, findings show that the indirect effect of natural resource rents on financial development process is detrimental through the channel of institutional quality, as increased natural resource wealth could exacerbate the incidence of corruption and gross mismanagement in the public sector. In addition, natural resource windfalls encourage high tendencies for divestment in financial sector in the sub-region. Based on these findings, the paper argues that strong institutions could help enhance the performance of financial sector in West Africa. However, to achieve this aim, policy makers across countries should formulate policies anchored on effective governance system to enhance efficiency of the financial sector in West Africa. Also there should be right mix of policies that will mitigate the incidence of gross mismanagement of natural resource wealth, and thus infuse improved demand for financial credit and market services within the sub-region. Keywords: Financial Development, Institutional Quality, Natural Resource Rents and West Africa.

Corporate risk around the world

Abstract: Weaknesses in the corporate sector have increasingly been cited as important factors in financial crises in both emerging markets and industrial countries. Analysts have pointed to weak corporate performance and risky financing patterns as major causes of the East Asian financial crisis. And some have argued that company balance sheet problems may also have played a role, independent of macroeconomic or other weaknesses, including poor corporate sector performance. But little is known about the empirical importance of firm financing choices in predicting and explaining financial instability. Firm financing patterns have long been studied by the corporate finance literature. Financing patterns have traditionally been analyzed in the Modigliani-Miller framework, expanded to incorporate taxes and bankruptcy costs. More recently, asymmetric information issues have drawn attention to agency costs and their impact on firm financing choices. There is also an important literature relating financing patterns to firm performance and governance. Several recent studies have focused on identifying systematic cross-country differences in firm financing patterns - and the effects of these differences on financial sector development and economic growth. They have also examined the causes of different financing patterns, particularly countries' legal and institutional environments. The literature has devoted little attention to corporate sector risk characteristics, however, aside from leverage and debt maturity considerations. Even these measures have been the subject of few empirical investigations, mainly because of a paucity of data on corporate sectors around the world. Building on data that have recently become available, the authors try to fill this gap in the literature and shed light on the risk characteristics of corporate sectors around the world. They investigate how corporate sectors' financial and operating structures relate to the institutional environment in which they operate, using data for more than 11,000 firms in 46 countries. They show that: 1) the origins of a country's laws, the strength of its equity and creditor rights, and the nature of its financial system can account for the degree of corporate risk-taking. 2) In particular, corporations in common law countries and market-based financial systems have less risky financing patterns. 3) Stronger protection of equity and creditor rights is also associated with less financial risk.

Indonesia : economic and social update (November 2007)

Abstract: In regard to Indonesia's economic and social situation, the last six months have shown a pick-up in the momentum of growth. This paper includes the following headings: summary introduction; growth, investment, and employment; financial markets; external sector and external debt; inflation and monetary policy; labor markets and wages; fiscal policy and government debt; financial sector development; poverty and the Millennium Development Goals (MDGs); policy priorities and developments; and the outlook and risks.

Financial Liberalization, Financial Development and Economic Growth: An Analysis of the Financial Sector of Bangladesh

Abstract: This chapter reviews the process of financial liberalization that has taken place over time and assesses its impact on the financial sector development and economic growth. Financial liberalization in the 1990s improves all the indicators of financial development, and as a result the financial system of Bangladesh has widened and deepened. The average credit, deposit and broad money to GDP ratios increased substantially from 6.6 percent, 14.9 percent and 19.0 percent, respectively, during 1976–1980 to 38.05 percent, 41.84 percent and 50.8 percent in 2012. Investment and per capita income also display a similar increasing pattern reflecting a close association with financial development. However, analysis casts doubt on the positive role of financial liberalization on the efficiency and competitiveness of the financial sector.

Macro-Financial Link and Monetary Policy Management: Insight from the Case of Nepal

Abstract: Increasing financial sector development and globalization have significantly changed the naturo of macro-financial link. The paper aims to obtain insight on how these changes have impacted on the effectiveness of monetary policy management, by undergoing a case study of Nepal. The empirical results over the thirty five year period spanning FY 1975 to FY 2009, find that the elasticity of the real interest rate is not economically and statistically significant in relation to the output gap. This result is further explored by examining sequentially the contributions of direct financing, domestic financial sector development and external integration. The results suggest that while their respective contribution to the elasticity of the real interest rate is now statistically significant, however it remains economically insignificant. Further the direction of effect is opposite to that of the theoretically predicted sign; this contrary result implies that the residual is driving the regression results. The results further suggest that the economic regime shift in early-1990s, had contributed to weaken the elasticity of the real interest rate. The general insight from the Nepalese case study is that countries have to re-examine on a regular basis the nature of macro-financial link to ensure optimal monetary policy management.