Money and Capital or Financial Deepening in Economic Development?

Fry, Maxwell J.

doi:10.2307/1991576

Cited by 222 publications

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“…In contrast, the liberalization of the financial system allows financial deepening and increases the competition in the financial sector, which in turn promotes economic growth. Similar ideas are put forward by, among others, Galbis (1977), Fry (1978), Goldsmith (1969), Greenwood and Jovanovic (1990), Thakor (1996), and Hicks (1969). They view financial development as a vital determinant of economic growth, which increases savings and facilitates capital accumulation and thereby leads to greater investment and growth.…”

Section: Introductionmentioning

confidence: 55%

Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia

2014

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We investigate the effect of financial development on economic growth in the context of an oil-rich economy. In doing so, we allow for the effect of financial development to be different for the oil and non-oil sectors of the economy in the long-run. Using the Autoregressive Distributed Lag (ARDL) bounds test technique; we find that financial development has a positive impact on the growth of the non-oil sector in Saudi Arabia. In contrast, its impact on total GDP growth is negative but insignificant.

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Section: Introductionmentioning

confidence: 55%

Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia

2014

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“…The m ai n i nt ent i on of t hese pol i ci es was t o secure l ow cost f i nance f or i ndust r i es t hat wer e deem ed i m port ant f or econom i c growt h. Such i nt ervent i oni st pol i ci es wer e seen t o const i t ut e sources of 'fi nanci al repressi on' by a vol um i nous l i t erat ure ( M cKi nnon, 1973;Shaw, 1973;Fry, 1995). A ccordi ng t o t hi s l i t erat ure, i nt erest rat e cei l i ngs, hi gh reserve r equi r em ent s and di r ect ed credi t program m es i nhi bi t t he devel opm ent of t he banki ng syst em and, as a resul t , reduce bot h t he vol um e and product i vi t y of i nvest m ent (M cKi nnon, 1973;Shaw , 1973;Gal bi s, 1977;K apur, 1976;M at hi eson, 1980;Fry, 1978Fry, , 1995. Thi s l i t erat ure has been i nfl uent i al i n shapi ng f i nanci al r eform s i n m any LDCs, not l east because t he Br et t on W oods i nst i t ut i ons em braced i t s concl usi ons.…”

Section: Fi Nanci Al Rest Raint S and Econom I C G Rowt H: The Sout Hmentioning

confidence: 99%

“…2.The M onopol y Bank M odel I n t he M cKi nnon/ Shaw fram ew ork banki ng i nst i t ut i ons, whi ch presum abl y i nt erm edi at e bet w een savers and i nvest ors, are i m pl i ci t l y assum ed t o operat e under perfect l y com pet i t i ve condi t i ons t ransformi ng deposi t s i nt o l oans at zero cost (M cKi nnon, 1981or Fry 1978, 1980, 1995.W e have argued el sew here Lui nt el , 1996a, 1996b) t hat perfect l y com pet i t i ve m odel s of banki ng are i nappropri at e for exam i ni ng t he eff ect s of f i nanci al pol i ci es. At t he t heoret i cal l evel , t r eat i ng t he banki ng syst em as perf ect l y com pet i t i ve l eaves l i t t l e r oom f or anal ysi ng t he behavi our of banks and t hei r react i on t o governm ent i nt ervent i ons.…”

Section: Fi Nanci Al Rest Raint S and Econom I C G Rowt H: The Sout Hmentioning

confidence: 99%

Financial restraints in the South Korean miracle

Demetriades

Luintel

2001

Journal of Development Economics

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W e pr ovi de novel em pi r i cal evi dence on t he eff ect s of fi nanci al rest r ai nt s on Sout h Kor ean fi nanci al devel opm ent . The evi dence i s l i nked t o a si m pl e m odel of t he Kor ean banki ng syst em t hat encapsul at es i t s cart el i sed nat ure, whi ch predi ct s a posi t i ve associ at i on bet w een fi nanci al devel opm ent and (i ) t he degree of st at e cont r ol over t he banki ng syst em , (i i ) m i l d repressi on of l endi ng rat es. The m odel al so predi ct s t hat i n t he presence of l endi ng rat e cont rol s, i ncreases i n t he l evel of t he adm i ni st ered deposi t rat e are unl i kel y t o i nfl uence fi nanci al deepeni ng. W e t est t he m odel em pi r i cal l y by const r uct i ng i ndi vi dual and sum m ar y m easures of f i nanci al r est r ai nt s. Our em pi r i cal f i ndi ngs are consi st ent wi t h our t heoret i cal predi ct i ons but cont rast sharpl y w i t h t he predi ct i ons of earl i er l i t erat ure t hat post ul at es t hat i nt erest r at e cei l i ngs and ot her f i nanci al r est r ai nt s const i t ut e sources of ' f i nanci al r epressi on'.

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“…The early studies which discussed this issue and suggested positive and significant relationship between financial development and economic growth were by Schumpeter (1911), Gurley and Shaw (1967), Goldsmith (1969), Mckinnon (1973), and Fry (1978). Moreover, other studies showed that financial development can improve efficiency via enhanced availability of finance to sustain potentially beneficial projects which had previously been excluded or via better information regarding projects to be financed (Greenwood & Jovanovic, 1990;King & Levine, 1993a;Rajan & Zingales, 1998).…”

Section: Introductionmentioning

confidence: 99%

Degree of Financial Development and Economic Growth in Qatar: Cointegration and Causality Analysis

Alkhuzaim¹

2014

IJEF

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Utilizing the cointegration technique and Granger causality test based on the Error Correction Model (ECM), this study empirically investigates the long-run relationship and the direction of causality between the financial development and economic growth in Qatar over the period 1990-2012. The financial development is measured by three alternative indicators: a broad money supply (M2) to GDP ratio, bank credit to the private sector as ratio to GDP, and domestic credit provided by bank sector as ratio to GDP. The economic growth is measured by the growth rate of real GDP. The results suggest that a positive long-run equilibrium relationship exists between all three financial development indicators and the growth rate of real GDP. The causality test results indicate that in the long-run, there is a bidirectional causal relationship between the broad money supply to the GDP ratio and the growth rate of real GDP as well as a unidirectional causality, which runs from domestic credit provided by the bank sector as a percentage of GDP to the growth rate of real GDP. However, a causality relationship does not exist between bank credits to the private sector ratio to GDP and economic growth. In the short-run, the findings show a unidirectional causality running from the growth rate of real GDP to domestic credit provided by the banking sector. However, no causal relationship between the growth rate of real GDP and the other two financial development indicators has been found.

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Money and Capital or Financial Deepening in Economic Development?

Cited by 222 publications

References 0 publications

Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia

Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia

Financial restraints in the South Korean miracle

Degree of Financial Development and Economic Growth in Qatar: Cointegration and Causality Analysis

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