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on Financial Development and Growth |
| By: | Hernán Rincón |
| Abstract: | This paper evaluates the effects of financial globalization on growth and macroeconomic volatility, from 1984 to 2003, for a sample of 43 countries. Particular attention is given to those effects on the member countries of the Latin American Reserve Fund (FLAR): Bolivia, Colombia, Costa Rica, Ecuador, Peru, and Venezuela. The findings show that financial globalization spurs growth, when the countries’ income level is controlled; it does not increase macroeconomic volatility, as it is commonly stated, but does not reduce it either. Belonging to FLAR does not seem to make a difference in terms of growth and macroeconomic volatility; however, the findings of a strong negative effect on the volatility of consumption might be related to the fact that those countries have an insurer (FLAR) that has helped them to smooth consumption during periods of adverse external shocks. |
| Date: | 2007–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:col:001043:002789&r=fdg |
| By: | Mendoza, Enrique G; Quadrini, Vincenzo; Ríos-Rull, José-Víctor |
| Abstract: | Large and persistent global financial imbalances need not be the harbinger of a world financial crash. Instead, we show that these imbalances can be the outcome of financial integration when countries differ in financial markets deepness. In particular, countries with more advanced financial markets accumulate foreign liabilities in a gradual, long-lasting process. Differences in financial deepness also affect the composition of foreign portfolios: countries with negative net foreign asset positions maintain positive net holdings of non-diversifiable equity and FDI. Abstracting from the potential impact of globalization on financial development, liberalization leads to sizable welfare gains for the more financially-developed countries and losses for the others. Three empirical observations motivate our analysis: (1) financial deepness varies widely even amongst industrial countries, with the United States ranking at the top; (2) the secular decline in the U.S. net foreign asset position started in the early 1980s, together with a gradual process of international capital markets liberalization; (3) net exports and current account balances are negatively correlated with indicators of financial development. |
| Keywords: | international imbalances; portfolio composition; precautionary savings |
| JEL: | F36 F4 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6149&r=fdg |
| By: | Carlos Gustavo Machicado (Institute for Advanced Development Studies) |
| Abstract: | This article illustrates how the industrial organization of a banking system affects economic growth in a partially dollarized economy. I study a model where banking competition has some potentially good and some potentially bad effects for growth. I analyze how important they are quatitatively and, surprisingly, they do not seem to matter much. The main reason for this is that while competition leads banks to offer consumers a "better deal" on their deposits, this does not lead to a large increase in the savings rate. The effect depends on the main structural parameter values of the economy. In particular, if there is a high demand for liquidity insurance. I calibrate the model for the Bolivian economy and show that the growth rates under both systems are not significantly different. |
| Keywords: | General equilibrium and growth, Dollarization, Banking, Industrial Organization |
| JEL: | D50 F31 G21 L10 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:200702&r=fdg |