nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒01‒29
five papers chosen by
Georg Man

  1. Financial Liberalisation and Economic Growth: A Preliminary Analysis By Mamoon, Dawood; Nicholas, Howard
  2. Financial Intermediation, Capital Accumulation and Crisis Recovery By Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin
  3. A Macroeconomic Model with Financial Panics By Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
  4. Financial Development, Rule of Law and Wealth Inequality: Bayesian Model Averaging Evidence By Roman Horvath; Eva Horvatova; Maria Siranova
  5. Risks in China’s financial system By Song, Zheng (Michael); Xiong, Wei

  1. By: Mamoon, Dawood; Nicholas, Howard
    Abstract: In Pakistan, various measures were undertaken during the period of 1989 to 1994 to liberalize financial sector as part of the overall structural adjustment program (SAP) with the objective to promote economic growth and welfare. Following McKinnon and Shaw (MS) thesis (1973), it was assumed that financial liberalistaion through “deepening” and eliminating distortion and segmentation of financial markets, improves the process of the mobilisation of savings as well as the efficiency of investment, thereby accelerating the overall rate of economic growth. Financial liberalisation exerted positive effects on the financial system through a more efficient banking sector and more actively performing securities market in Pakistan. In addition to this, a considerable financial deepening was also witnessed after the 1990s in the financial sector through improved banking mechanism.
    Keywords: financial liberalisation, financial development, economic development
    JEL: G15 G21
    Date: 2017–11–28
  2. By: Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin
    Abstract: This paper integrates banks into a two-sector neoclassical growth model to account for the fact that a fraction of firms relies on banks to finance their investments. There are four major contributions to the literature: First, although banks’ leverage amplifies shocks, the endogenous response of leverage to shocks is an automatic stabilizer that improves the resilience of the economy. In particular, financial and labor market institutions are essential factors that determine the strength of this automatic stabilization. Second, there is a mix of publicly financed bank re-capitalization, dividend payout restrictions, and consumption taxes that stimulates a Pareto-improving rapid build-up of bank equity and accelerates economic recovery after a slump in the banking sector. Third, the model replicates typical patterns of financing over the business cycle: procyclical bank leverage, procyclical bank lending, and countercyclical bond financing. Fourth, the framework preserves its analytical tractability wherefore it can serve as a macro-banking module that can be easily integrated into more complex economic environments.
    Keywords: Financial intermediation; capital accumulation; banking crisis; macroeconomic shocks; business cycles; bust-boom cycles; managing recoveries
    JEL: E21 E32 G21 G28
    Date: 2018–01
  3. By: Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
    Abstract: This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the circumstances that makes an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity and the effects of policies in containing crises.
    JEL: E0 E44
    Date: 2017–12
  4. By: Roman Horvath (Charles University, Prague); Eva Horvatova; Maria Siranova
    Abstract: We examine the determinants of financial development using our global sample and employing a rich set of measures of financial development that assess the degree of depth, access, stability and efficiency of financial intermediaries. We use Bayesian model averaging to test competing theories within this unifying framework. Examining nearly 40 potential determinants of financial development, we find that the rule of law and the level of economic development are the most important. Wealth inequality is irrelevant for banking sector development but positively associated with stock market development. Finally, our results suggest that financial market regulations matter for stock market efficiency and financial stability.
    Keywords: Financial development, Bayesian model averaging, rule of law, wealth inequality
    JEL: G10 G20
    Date: 2017–09
  5. By: Song, Zheng (Michael); Xiong, Wei
    Abstract: Motivated by growing concerns about the risks and instability of China’s financial system, this article reviews several commonly perceived financial risks and discusses their roots in China’s politico-economic institutions. We emphasize the need to evaluate these risks within China’s unique economic and financial systems, in which the state and non-state sectors coexist and the financial system serves as a key tool of the government to fund its economic policies. Overall, we argue that: (1) financial crisis is unlikely to happen in the near future, and (2) the ultimate risk lies with China’s economic growth, as a vicious circle of distortions in the financial system lowers the efficiency of capital allocation and economic growth and will eventually exacerbate financial risks in the long run.
    JEL: E02 G01
    Date: 2018–01–17

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