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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.


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TL;DR: In this paper, the authors examined whether financial services (McKinnon conduit) or provision of credit is more effective in reducing poverty in Nigeria using data for the period 1980-2018 using Autoregressive and distributed Lag Model (ARDL) approach to estimate the parameters and cointegration analyses for income and consumption models.
Abstract: This paper examines whether financial services (McKinnon conduit) or provision of credit is more effective in reducing poverty in Nigeria using data for the period 1980-2018. It employs Autoregressive and Distributed Lag Model (ARDL) Approach to estimate the parameters and cointegration analyses for income and consumption models. The results of the ARDL Bound Test to Cointegration indicate a long-run relationship among the variables in the two models. The study reveals that availability and improvement in financial services is more beneficial than credit growth. In addition, the study suggests that financial instability may hurt the poor and retards the beneficial effect of financial development particularly in the short run. The paper recommends intensification of effort towards second-generation reforms, such as, design and implementation of financial inclusion policies that involve improving access to financial services that foster inclusive-growth. Furthermore, the study recommends guided deregulation in credit market as a way of precluding or subduing its susceptibility in triggering full-blown crises that is detrimental to the poor’s aggregate welfare.

4 citations

Journal ArticleDOI
TL;DR: In this paper, the authors examined the relationship between local banking sector development and manufacturing using a unique data set having district level data from India, and explored the relationship of the availability of local credit to the growth of manufacturing in the district taking advantage of the panel data and employing a GMM model.
Abstract: This paper examines the relationship between local banking sector development and manufacturing Using a unique data set having district level data from India, this paper explores the relationship of the availability of local credit to the growth of manufacturing in the district Taking advantage of the panel data and employing a GMM model, the results provide support for the view that financial development at the local level is important for growth of manufacturing in the region This suggests that for development of manufacturing across various local regions, it is not enough to have few centers which have developed financial infrastructure, but that the development of the financial sector in the local region is important Further, we find that sector specific credit, specifically credit to the manufacturing sector in the district has a positive impact on local manufacturing output, and not the total credit to in the district, suggesting that sector specific lending technology is important for the development of specific sectors Another interesting result obtained is that the coefficient of the interaction term between financial development and human capital, proxied by literacy rate in the population, is negative, suggesting that, ceteris paribus, the constraints on growth of manufacturing due to financial sector development are lower in districts with higher literacy levels The results of this study suggest that countries that desire to increase manufacturing output would do well to pay attention to the development of a geographically dispersed banking sector with sector specific lending capabilities

4 citations

01 Mar 2014
TL;DR: The main instruments of financial repression have included interest rate ceilings, selective credit rationing policies, restrictions on the remittance of capital, exchange controls and taxes on financial assets, zero-interest reserve requirements and a mesh of liquidity ratios.
Abstract: The financial sector development history of Zimbabwe has been dominated by episodes of financial repression. The main instruments of financial repression have included interest rate ceilings, selective credit rationing policies, restrictions on the remittance of capital, exchange controls and taxes on financial assets, zero-interest reserve requirements and a mesh of liquidity ratios. Inflation tax has also been used as a subtle form of financial repression. The rationale for financial repression has been based on the premise that government intervention would remedy the existing structural weakness of the market, channel resources to priorities sectors, which were considered as the engines of growth. Thus, the targeted sectors or companies that received subsidised credit (especially public enterprises) had easy access to scarce foreign currency (through import licences) and/or government guarantees (Chigumira, 2000). The episodes of financial repression have been accompanied by low savings, excessive credit rationing and low investment. This adversely affected the quality and quantity of investment as bankers adopted credit-rationing policies and practices that encouraged inefficient and/or capital intensive projects. Banks are also likely to have invested less in risk assessment and monitoring systems especially where banks were forced to lend to targeted sectors. There has been a burgeoning literature that questioned the wisdom of financial repression and provided financial liberalisation as an alternative framework for managing the financial sector. Within this literature financial repression has been considered as a second best strategy that is adopted when institutional constraints prevented Governments from collecting enough tax revenue to finance expenditure. Asset price distortions caused by financial repression have inhibited the development of the financial sector and undermined the sector’s contribution to economic development. In particular, administered deposit rate ceilings in an environment of high nominal inflation rates resulted in negative real interest rates, which curtailed savings mobilisation. In this regard measures that repress the financial sector consequently reduce the size of the banking system and stifle financial intermediation. The emergence and perpetuation of financial dualism (the co-existence of the formal and informal financial sectors), has in part been attributed to repressive financial sector policies among other factors. The financial price differentials and market segmentation caused by this dualistic structure caused further distortions in the economy. The main policy recommendation by McKinnon (1973) and Shaw (1973) and more recently from the endogenous financial development literature is to liberalise the financial sector. This entails decontrolling of interest rates, removing other controls that inhibited the development of the money and capital market. It was envisaged that positive real rates of interest would stimulate financial savings and thus expand real supply of credit within the financial sector. The increase in credit would consequently increase the volume of investment in productive sectors of the economy. This would ultimately stimulate growth not only through increased volume of investment but also due to increases in the average productivity of capital (see King and Levine 1993). Increase in productivity will arise because market determined interest rates, based on appropriate risk assessment will eliminate low risk and low-yielding investments in favour of high risk and high return investments. Financial liberalisation featured as a major component of the International Monetary Fund (IMF) and World Bank supported structural adjustment programmes (SAPs) that were adopted and implemented in a number of African countries in the 1980s. Country experiences with financial liberalisation have been varied and wide depending on a number of factors including the initial conditions; market failures and sequencing of the reforms, among others. In some instances, financial liberalisation induced financial sector deepening and in others financial crisis. This paper provides a synopsis of the international and country’s experience with financial liberalization/reform. The ultimate objective is to draw lessons from cross-country experiences on the design and implementation of financial reforms.,Government of Zimbabwe, African Capacity Building Foundation and USAID.

4 citations

01 Jan 2013
TL;DR: The Independent Evaluation Group (IEG) as mentioned in this paper recommends that IFC continue to strengthen the GTFP's focus in areas where additionally is high and increase the share of the program in high-risk markets and where the supply of trade finance and alternate risk-mitigation instruments are less available.
Abstract: The International Finance Corporation (IFC) introduced the Global Trade Finance Program (GTFP) in 2005 is to 'support the extension of trade finance to underserved clients globally.' The program has since expanded rapidly, and its authorized exposure ceiling was increased in three stages from $500 million in 2005 to $5 billion in 2012. In FY12, the GTFP accounted for 39 percent of total IFC commitments, 53 percent of its commitments in Sub Saharan Africa, and 48 percent of its commitments in Latin America and the Caribbean. The Independent Evaluation Group (IEG) recommends that IFC (i) continue to strengthen the GTFP's focus in areas where additionally is high and increase the share of the program in high-risk markets and where the supply of trade finance and alternate risk-mitigation instruments are less available; (ii) adopt additional methods of reporting volume that can reflect the distinct nature of trade finance guarantees; (iii) refine the means by which GTFP profitability is monitored and reported; (iv) review the costs and benefits of the current monitoring and evaluation framework; (v) ensure that a transparent process is in place to govern cases of covenant breach; and (vi) enhance the program's ability to meet the demand for coverage of longer-term trade finance tenors.

4 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
202357
202279
202155
202093
201991
201888