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Financial Sector Development for Growth and Poverty Reduction

Project name/title
Financial Sector Development for Growth and Poverty Reduction
Year:
2004
Theme:
Globalization and Trade
Abstract:
The effective mobilization of domestic savings for private investment plays a crucial role in achieving growth and poverty reduction; this is demonstrated by the historical experience of the now developed countries as well as East Asia. Low-income countries have undertaken considerable financial reform over the last decade, including financial-market liberalization (the lifting of direct quantitative controls), bank privatization, and efforts to build the capacity of central banks and financial authorities to conduct prudential regulation and supervision of the liberalized financial system. The same has been true in the transition economies, which have undertaken wholesale institutional reform to build a market-orientated financial system. But two problems have become apparent. First, the construction of regulatory and supervisory capacity has often lagged behind liberalization, and a number of low-income and transition countries have experienced major bank crises (which in turn have destabilizing macro-economic effects). Second, the domestic investment response to financial liberalization has often been disappointing; savings mobilization has continued to be low, and the newly liberalized systems have often not effectively intermediated savings into new and higher levels of domestic investment. Moreover, lending to domestic investors continues to be focused overwhelmingly on larger borrowers, with small and medium-sized enterprises continuing to have inadequate recourse to formal financial lending. For these reasons the effectiveness of financial reform in achieving higher levels of investment and growth remains in doubt. Moreover, the contribution of the financial sector to the achievement of faster poverty reduction (through the achievement of higher wage-employment growth and self-employment in small and medium-sized enterprises) appears to be meagre at best in many countries. And financial crises in endangering macro-economic stability contribute to higher unemployment and poverty when they result in recession. In general, we have only a limited understanding of the channels through which the financial sector affects investment behaviour, its effects on savings rates, and the interaction between domestic financial flows and external financial flows. This is a critical issue in the light of post-Monterrey initiatives to encourage the flow of private capital to developing countries and its effective use for investment and pro-poor development.
Director:
Assistant:
Participants:
Svetlana Andrianova, Department of Economics, University of Leicester, U.K.
Paul Wachtel, Stern School of Business, New York University.
Peter Rousseau, Department of Economics, Vanderbilt University.
Alemayehu Geda, Dept. of Economics, Addis Ababa University. 
Leonardo Becchetti, Università Tor Vergata, Department of Economics, Rome.
Abebe Shimeles, Goteborg University.
Daniel Zerfu, Goteborg University and Addis Ababa University.
Iftekhar Hasan, Rensselaer Polytechnic Institute, Lally School of Management, New York & Berkley Research Centre, Stern School of Business, New York University.
Mansoob Murshed, Institute of Social Studies, The Hague, and Birmingham Business School.
Robrt Lensink, University of Groningen, Faculty of Economics, Groningen.
Abdur Chowdhury, Economic Analysis Division, United Nations Commission for Europe (UNECE).
Panicos Demetriades, Department of Economics, University of Leicester, U.K.  
Peter Quartey, University of Ghana.   
Dmitri Vinogradov, Alfred Weber Institute, University of Heidelberg, Germany.
Niels Hermes, Department of Financial Management, University of Groningen.
Fabrizio Carmignani, Economic Analysis Division, UN Commission for Europe. Sugata Marjit, Department of Economics & Finance, City University of Hong Kong.
Pranab Das, Reserve Bank of India Endowment, Centre for Studies in Social Sciences, Calcutta, India.
Saibal Kar, Reserve Bank of India Endowment, Centre for Studies in Social Sciences, Calcutta, India.
Marco Mazzoli, Catholic University of Piacenza, Italy.
Kul Luintel, University of Wales Swansea, UK.
Subal C. Kumbhakar, State University of New York, Binghamton, New York.
Project Meetings
Publications: