Financial Development and Market Structure

Journal of International Financial Markets, Institutions and Money, 2016

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2004

The paper contributes to understanding the impact of financial system indicators on economic growth. A particular emphasis is placed on financial structure indicators, which measure the specific organization of the financial system, namely, banking sector concentration, foreign bank penetration, government regulation and the efficiency of the banking industry - as opposed to depth indicators, which measure financial market liquidity. In this respect (1) the concentration of banks was found to have a detrimental impact on growth. However, concentration may also have indirect and positive impacts on growth depending on a countries initial stage of economic development, i.e. for comparatively more developed countries, the negative impact of concentration on long-run growth is lower. (2) Financial liquidity indicators, which work through both physical capital accumulation and total factor productivity, have a strong impact on economic growth. The catalyst role capita, finally, determine...

What is the relationship between markets and development? It is argued that markets promote growth, and that growth in turn encourages the formation of markets. Two models with endogenous market formation are presented to analyze this issue. The first examines the role that financial markets -banks and stock markets -play in allocating funds to the highest valued use in the economic system. It is shown that intermediation will arise under weak conditions. The second focuses on the role that markets play in supporting specialization in economic activity. The consequences of perfect competition in market formation are highlighted.

2013

2011

This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposedinformation asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts of market participants to grind down or circumvent these frictions, a process further spurred by financial innovation and scale and network effects. The analysis leads to broad predictions regarding the sequencing and convexity of the dynamic paths for a battery of financial development indicators. The method This paper is a product of the Chief Economist Office for Latin America and the Caribbean Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at [email protected], [email protected], and [email protected]. used also yields a robust way to benchmark the financial development paths followed by individual countries or regions. The paper explores the reasons for path deviations and gaps relative to the benchmark. Demandrelated effects (past output growth), financial crashes, and supply-related effects (the quality of the enabling environment) all play an important role. Informational frictions are easier to overcome than contractual frictions, not least because of the transferability of financial innovation across borders.

Research Journal of Finance and Accounting, 2015

The economic globalization has had a particular profound impact upon financial development during the last four decades giving rise to a group of closely intertwined international markets on which banks, corporations, or government agencies trade an increasing amount of assets such as bonds, shares, or currencies. The transaction cost of accessing external funds has shrunk considerably, which facilitates investment and market entry, entails competitive pressures to innovate, mobilizes savings to accumulate capital, and eventually induces further economic growth. Still, in terms of financial development, considerable heterogeneity continues to exist around the world. The importance of understanding the factors behind the time series variation in financial development, alongside those that shape the crosscountry variation, cannot be over emphasized. In a world of capital immobility, investments are bound to be solely financed by domestic savings. However, varying degrees of financial development and exchange rate flexibility between countries can both potentially act as frictions to international financial integration.

The World Bank Economic Review, 2013

International Journal of Social Science and Economic Research, 2020

This research aims to analyse the impact of financial system's development and stability on economic growth. There is enough economic literature which defines well-functioning of financial system which helps to gain economic efficiency, investment and growth. It also ventures to study the relationship between the financial development and growth regarding to Indian economy. The following study findings are put to the test: 1. The dependency between financial system and rise in economy. 2. Having large financial system does not mean to rise in economy and GDP of country. This paper also emphasis on financial deepening of markets in India and other Asia pacific wealth which is generally consider as a critical enabler of economic development. The vast structure of financial system and deepening of financial system gave more access to productive investment to occur. Financial intermediation plays a vital role to improve efficiency and reaching higher real growth in country's wealth. Increase in diversification of financial system with a mixture of small-and large-scale institutions and combination of bank and non-financial institutions will be better suited to real economic needs. However, there are many challenges faced by financial sector in form of Non-Performing Assets (NPAs) of the financial institutions i.e. banks and under developed corporate bond markets. These challenges require some attention and policy amendments.

SSRN Electronic Journal, 2000

Existing theories that emphasize the significance of financial intermediation for economic development have not addressed two important empirical facts: (i) the relationship between financial and real activities depends crucially on the stage of development, and (ii) financial and industrial market structures vary widely across otherwise similar countries. To explain these observations, we develop a dynamic general equilibrium model allowing for endogenous market structures in which financial deepening spurs real activity through intermediate product broadening. We show the possibility of multiple steady-state equilibria and characterize how these equilibria respond to various shocks. In particular, we examine the determinants of financial deepening, product broadening, the saving rate, the loan-deposit interest rate spread, and the degree of competitiveness of financial and product markets. We find that the dynamic interactions between financial and real activities depend critically on the synergy of financial and industrial competitiveness.

2013

There has been a lot of debate as to which of the financial system or structure promotes Economic Growth in an economy. In this sense policy makers have debated the relative merit of bank based and market based in affecting economic growth in the economy. This paper therefore examines the impact of financial structure on economic growth of some selected ECOWAS Countries, Relying on model developed by Levine (2002], Olofin and Udoma (2008), we specified a macro econometrics model to examine the relationship between financial structure variables and growth variable. The paper provides a useful contribution in the relationship between financial system and Economic growth in these selected ECOWAS countries. Based on the long-run and short-run estimate, it was concluded that some of the countries are Bank based financial systems while other are market based financial systems, and that financial structure matter for Growth of these economies.