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on Financial Development and Growth |
| By: | Demirguc-Kunt, Asli |
| Abstract: | The empirical literature on finance and development suggests that countries with better developed financial systems experience faster economic growth. Financial development-as captured by size, depth, efficiency, and reach of financial systems-varies sharply around the world, with large differences among countries at similar levels of income. This paper argues that governments play an important role in building effective financial systems and discusses different policy options to make finance work for development. |
| Keywords: | Banks & Banking Reform,Economic Theory & Research,Macroeconomic Management,Pro-Poor Growth and Inequality,Inequality |
| Date: | 2006–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3955&r=fdg |
| By: | Wei Huang |
| Abstract: | We examine the effect of financial openness on the development of financial systems in a panel of 35 emerging markets during the period of 1976 to 2003. A group of indicators including variables from banking sector, stock market, and national capital accounts are used as measures of financial openness and financial development. In addition, aggregate index measures are developed to incorporate information from different areas of the financial system. Our empirical results generally suggest that financial openness is the key determinant of cross-country differences in the development of financial systems. When testing financial openness against the development of the banking sector and stock market separately, we found strong and robust evidence that this link between openness and development exists in stock markets. Although a similar link is sometimes found with banking sectors, it is not robust to different indicators of financial openness and model specifications. |
| Keywords: | emerging markets, financial openness, financial development |
| JEL: | F36 F37 G15 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:06/588&r=fdg |
| By: | Adalbert Winkler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Roland Beck (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | This paper – based on a report by a Task Force established by the International Relations Committee (IRC) of the European System of Central Banks (ESCB) – reviews macroeconomic and financial stability challenges for acceding (Bulgaria and Romania) and candidate countries (Croatia and Turkey). In an environment characterised by strong growth and capital inflows, the main macroeconomic challenges relate to the recent pick-up of inflation and the large and widening current account deficits. Moreover, rapid credit growth has been a recent feature of financial development in all countries and thus constitutes the main financial stability challenge. In general, monetary authorities have responded to these challenges by tightening monetary conditions and prudential standards, with concrete measures also reflecting the different monetary and exchange rate regimes in the region. The paper also highlights four specific features of financial development in the countries under review, namely the dominance of banks in financial intermediation, the strong participation of foreign-owned banks, the widespread use of foreign currencies and the strengthening of supervisory frameworks. JEL Classification: E65, G21, G38, O16, P27. |
| Keywords: | South-East Europe, macroeconomic performance, credit growth, financial stability. |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20060048&r=fdg |
| By: | Tressel, Thierry; Detragiache, Enrica; Demirguc-Kunt, Asli |
| Abstract: | This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCP) improves bank soundness. BCP compliance assessments provide a unique source of information about the quality of bank supervision and regulation around the world. The authors find a significant and positive relationship between bank soundness (measured with Moody ' s financial strength ratings) and compliance with principles related to information provision. Specifically, countries that require banks to report regularly and accurately their financial data to regulators and market participants have sounder banks. This relationship is robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, as well as reverse causality. Measuring soundness through z-scores yields similar results. The findings emphasize the importance of transparency in making supervisory processes effective and strengthening market discipline. Countries aiming to upgrade banking regulation and supervision should consider giving priority to information provision over other elements of the Core Principles. |
| Keywords: | Banks & Banking Reform,Financial Intermediation,Corporate Law,Financial Crisis Management & Restructuring,Insurance & Risk Mitigation |
| Date: | 2006–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3954&r=fdg |
| By: | Martinez Peria, Maria Soledad; Demirguc-Kunt, Asli; Aggarwal, Reena |
| Abstract: | Workers ' remittances to developing countries have become the second largest type of flows after foreign direct investment. The authors use data on workers ' remittance flows to 99 developing countries from 1975-2003 to study the impact of remittances on financial sector development. In particular, they examine whether remittances contribute to increasing the aggregate level of deposits and credit intermediated by the local banking sector. This is an important question considering the extensive literature that has documented the growth-enhancing and poverty-reducing effects of financial development. The findings provide strong support for the notion that remittances promote financial development in developing countries. |
| Keywords: | Remittances,Economic Theory & Research,Pro-Poor Growth and Inequality,Banks & Banking Reform,Financial Economics |
| Date: | 2006–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3957&r=fdg |
| By: | Andrei Shumilov (CEFIR); Natalya Volchkova (New Economic School/CEFIR) |
| Abstract: | Numerous evidence demonstrate that firms affiliated with business groups in emerging markets outperform their independent counterparts. One of the proposed explanations for such a phenomenon is the more advanced groups’ internal markets structure compared to the rest of the economy. In this paper we test the hypothesis that internal capital markets within Russian business groups overcome the liquidity constraints problem widely spread outside groups. Our findings indicate that even if the groups’ internal capital markets do exist in Russian business groups, their efficiency is rather doubtful and the access to external financing by firms affiliated with the groups is constrained. |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0050&r=fdg |