Financial Development and the Instability of Open Economies

Overall, this suggests that economies at an intermediate stage of financial development should consider carefully how they liberalize their capital account. Allowing foreign direct investment while initially restricting portfolio ...

Author: Philippe Aghion

Publisher:

ISBN: UCSD:31822033210402

Category: Commerce

Page: 64

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"This paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies. Our basic model is a dynamic open economy model with a tradeable good produced with capital and a country-specific factor. We also assume that firms face credit constraints, with the constraint being tighter at a lower level of financial development. A basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies. This is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles. Thus, countries that are going through a phase of financial development may become more unstable in the short run. Similarly, full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development: phases of growth with capital inflows are followed by collapse with capital outflows. On the other hand, foreign direct investment does not destabilize"--NBER website
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Comparative Advantage Demand for External Finance and Financial Development

Quý Toàn Đỗ, Andrei A. Levchenko, World Bank. Development Research Group. Poverty. I 1 Introduction A quick glance at levels of financial development.

Author: Quý Toàn Đõ̂

Publisher:

ISBN: UCSD:31822034372359

Category: Comparative advantage (International trade)

Page: 42

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"The differences in the levels of financial development between industrial and developing countries are large and persistent. Theoretical and empirical literature has argued that these differences are the source of comparative advantage and could therefore shape trade patterns. This paper points out the reverse link: financial development is influenced by comparative advantage. The authors illustrate this idea using a model in which a country's financial development is an equilibrium outcome of the economy's productive structure: financial systems are more developed in countries with large financially intensive sectors. After trade opening demand for external finance, and therefore financial development, are higher in a country that specializes in financially intensive goods. By contrast, financial development is lower in countries that primarily export goods which do not rely on external finance. The authors demonstrate this effect empirically using data on financial development and export patterns in a panel of 96 countries over the period 1970-99. Using trade data, they construct a summary measure of a country's external finance need of exports and relate it to the level of financial development. In order to overcome the simultaneity problem, they adopt a strategy in the spirit of Frankel and Romer (1999). The authors exploit sector-level bilateral trade data to construct, for each country and time period, a predicted value of external finance need of exports based on the estimated effect of geography variables on trade volumes across sectors. Their results indicate that financial development is an equilibrium outcome that depends strongly on a country's trade pattern. "--World Bank web site.
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Financial Development and Economic Growth

ment of the financial system can have a causal effect on economic growth.6 However, two findings suggest that this evidence should be interpreted with care. First of all, even when initial financial development indicators are ...

Author: Niels Hermes

Publisher: Routledge

ISBN: 9781135635442

Category: Business & Economics

Page: 380

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This collection brings together a collection of theoretical and empirical findings on aspects of financial development and economic growth in developing countries. The book is divided into two parts: the first identifies and analyses the major theoretical issues using examples from developing countries to illustrate how these work in practice; the second part looks at the implications for financial policy in developing countries.
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Corporate Finance and Financial Development

Based on the work of the Levine (1997, 2005), financial development, which mainly includes banks and financial markets, contributes to a reduction in the information and transaction costs associated with financial operations.

Author: Shame Mugova

Publisher: Springer Nature

ISBN: 9783031049804

Category: Business & Economics

Page: 212

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This book addresses key issues in corporate finance and explores them from financial development and financial stability perspectives in emerging markets. Emerging economies are susceptible to rapidly changing financial sectors and products as well as financial upheavals. In this light, the growing interdependence of states and capital markets, and the risk of crises have an impact on the financing of firms. The chapters in this book highlight how companies and policies in emerging markets are affected and deal with the current post-crisis world. By combining academic and industry insights, the critical issues in corporate finance, financial development, and the preparedness of emerging markets are explored.
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Financial Development and Growth in the Caucasus and Central Asia

Business surveys suggest that insufficient financial development (low access to finance, lack of financing instruments, high lending rates, etc.) is one of the most prominent impediments to growth (Gigineishvili and others, 2022).

Author: Mr. Tigran Poghosyan

Publisher: International Monetary Fund

ISBN: 9798400216022

Category: Business & Economics

Page: 25

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This paper presents stylized facts on financial development in the CCA countries relative to their EM and LIC peers and assesses how financial development can boost growth in the CCA. Drawing on IMF’s multidimensional index of financial development, we find that CCA countries have made progress following the independence in early 1990s. However, the progress was uneven across the CCA, resulting in a divergence of financial development over time and mixed performance relative to EM and LIC peers. Financial institutions have progressed the most, while financial markets remain underdevelped in most CCA countries except Kazakhstan. In terms of sub-indicators of financial development, financial access has expanded markedly, while the depth of financial intermediation has remained largely shallow and efficiency of financial intermediation has fluctuated over time. Standard growth regressions suggest that CCA countries with relatively lower level of financial development have scope to boost annual growth rates between 0.5-2.5 percent by reaching the level of financial development of frontier CCA countries.
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Financial Development in Sub Saharan Africa

For instance, raising the financial development index of Niger (0.08) to the level of Kenya (0.18) generates a positive growth impact of 1.9 27.00 ** 9.956 *** *** ** percentage points, while a further increase to the level of Namibia ...

Author: Mr.Montfort Mlachila

Publisher: International Monetary Fund

ISBN: 9781475532401

Category: Business & Economics

Page: 79

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This paper discusses how sub-Saharan Africa’s financial sector developed in the past few decades, compared with other regions. Sub-Saharan African countries have made substantial progress in financial development over the past decade, but there is still considerable scope for further development, especially compared with other regions. Indeed, until a decade or so ago, the level of financial development in a large number of sub-Saharan African countries had actually regressed relative to the early 1980s. With the exception of the region’s middle-income countries, both financial market depth and institutional development are lower than in other developing regions. The region has led the world in innovative financial services based on mobile telephony, but there remains scope to increase financial inclusion further. The development of mobile telephone-based systems has helped to incorporate a large share of the population into the financial system, especially in East Africa. Pan-African banks have been a driver for homegrown financial development, but they also bring a number of challenges.
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Measuring Financial Development in Sub Saharan Africa

CONCLUSIONS Recent literature on finance and growth suggests that financial systems arise to facilitate exchange , manage risk , identify good projects , monitor managers , and mobilize savings . In principle , an assessment of ...

Author: Mr.Enrique Gelbard

Publisher: International Monetary Fund

ISBN: 9781451852806

Category: Business & Economics

Page: 28

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This study introduces an index for measuring financial development and a set of six indices representing key characteristics of the financial systems in 38 sub-Saharan African countries. The results show that these countries have made good progress in improving and modernizing their financial systems during the last decade, particularly with regard to financial liberalization and the adoption of indirect instruments of monetary policy. In many countries, however, the range of financial products remains extremely limited, interest rate spreads are wide, capital adequacy ratios are insufficient, judicial loan recovery is a problem, and the share of nonperforming loans is large.
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Taming Financial Development to Reduce Crises

Rioja and Valev (2004b) find that the effect of financial development on growth is positive only in the intermediate and very high financial development groups. Rousseau and Wachtel (2000) find that growth is not affected by financial ...

Author: Mr.Sami Ben Naceur

Publisher: International Monetary Fund

ISBN: 9781498314077

Category: Business & Economics

Page: 28

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This paper assesses whether and how financial development triggers the occurrence of banking crises. It builds on a database that includes financial development as well as financial access, depth and efficiency for almost 100 countries. Through estimation of a dynamic logit panel model, it appears that financial development, from an institutional dimension and to a lesser extent from a market dimension, triggers financial instability within a one- to two-year horizon. Additionally, whereas financial access is destabilizing for advanced countries, it is stabilizing for emerging and low income ones. Both results have important implications for macroprudential policies and financial regulations.
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Global Financial Development Report 2017 2018

transactions at a lower cost, and developing technologies for data security, risk management, mobile banking and ... According to the fourth Financial Development Barometer—an informal poll of policymakers in developing countries ...

Author: World Bank

Publisher: World Bank Publications

ISBN: 9781464811968

Category: Business & Economics

Page: 178

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Successful international integration has underpinned most experiences of rapid growth, shared prosperity, and reduced poverty. Perhaps no sector of the economy better illustrates the potential benefits--but also the perils--of deeper integration than banking. International banking may contribute to faster growth in two important ways: first, by making available much needed capital, expertise, and new technologies; and second, by enabling risk-sharing and diversification. But international banking is not without risks. The global financial crisis vividly demonstrated how international banks can transmit shocks across the globe. The Global Financial Development Report 2017/2018 brings to bear new evidence on the debate on the benefits and costs of international banks, particularly for developing countries. It provides evidence-based policy guidance on a range of issues that developing countries face. Countries that are open to international banking can benefit from global flows of funds, knowledge, and opportunity, but the regulatory challenges are complex and, at times, daunting. Global Financial Development Report 2017/2018 is the fourth in a World Bank series. The report also tracks financial systems in more than 200 economies before and during the global financial crisis on an accompanying website (www.worldbank.org/financialdevelopment). **Note: This World Bank report, Global Financial Development Report 2017/2018: Bankers without Borders, is not associated with the Grameen Foundation’s Bankers without Borders program, which engages volunteer consultants to donate their expertise to serve social enterprises and nonprofits in poor countries. For more information, visit: https://www.bankerswithoutborders.com.
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ICT Driven Economic and Financial Development

ICT-financegrowth nexus: Empirical evidence from the next-11 countries. Cuadernos de Economia, 40(113), 115–134. Pradhan, R. P., Arvin, M. B., Bahmani, S., & Bennett, S. E. (2017). Broadband penetration, financial development, ...

Author: Ewa Lechman

Publisher: Academic Press

ISBN: 9780128137994

Category: Business & Economics

Page: 320

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ICT-Driven Economic and Financial Development: Analyses of European Countries demonstrates the effects of ICT diffusion on economic, social and financial development by examining their impact on the structure and dynamics of national economies. It provides the insight into shifts observed in labour markets, international trade activities productivity factors, education and use of innovative financial products. It combines empirical analyses and data sources stretching back to 1990 make it an important contribution to understanding the effects of ICT diffusion on economic and financial development. The book answers questions such as how will national and regional economies react to upcoming ICT developments and growing usage, and what is the magnitude of impact of new information and communication technologies on various aspects of social and economic life. Demonstrates the process fo ICT spread across European countries Analyzes the value of ICTs from both economic and social perspective Examines structural changes in financial markets caused by ICTs implementation
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