New financial intermediary development indicators for developing countries

Simplice A., Asongu (2011): New financial intermediary development indicators for developing countries. Forthcoming in:

Abstract

Financial development indicators are often applied to countries/regions without taking into account specific financial development realities. Financial depth in the perspective of monetary base is not equal to liquid liabilities in every development context. This paper introduces complementary indicators to the existing Financial Development and Structure Database (FDSD). These new measures can easily be computed from the FDSD. We present absolute as well as relative measures which are robust to the finance-growth nexus. When all financial sectors are taken into account in the definition and usage of liquid liabilities: (1) the formal and non-formal/informal financial sectors are inherently mutually antagonistic and should not be assimilated to the monetary base without distinction; (2) equating formal banking sector liquid liabilities to monetary base significantly undermines the formal banking system elasticity of growth; (3) there is a trade-off between growth and welfare from one financial sector to another; (4) non-formal and informal financial sectors are independent significant growth determinants.

• Item Type: MPRA Paper
• Language: English
• Keywords: Finance; Development; Formalization, Panel, Developing Countries
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy

References

Abu-Bader, S., & Abu-Qarn, A.S., (2008), “Financial Development and Economic Growth: Empirical Evidence from Six MENA countries”, Review of Development Economics, 12(4), pp. 803-817.

Ang, J.B. & McKibbin, W.J., (2007), “Financial Liberalization, financial sector development and growth: Evidence from Malaysia”, Journal of Development Economics, 84, pp.215-233.

Asongu, S. A., (2010a), “Stock market development in Africa: do all macroeconomic financial intermediary determinants matter?” MPRA Paper 26910.

Asongu, S. A., (2010b), “Bank efficiency and openness in Africa: do income levels matter?” MPRA 27025.

Asongu, S. A., (2011), “How would population growth affect investment in the future? Asymmetric penal causality evidence for Africa”, MPRA Paper 30124.

Aryeetey, E. (2008, March), “From Informal Finance to Formal Finance in Sub-Saharan Africa: Lessons from Linkage Efforts”, Institute of Statistical, Social and Economic Research, University of Ghana.

Claessens, Stijn, Demirgüç-Kunt, A, & Huizinga, H.(2001), “How does foreign entry affect the domestic banking market? Journal of Banking and Finance 25 (May), pp. 891–911.

Demetriades, P.O., & Hussein, K.A.,(1996), “Does Financial Development Cause Economic Growth? Time-Series Evidence from Sixteen Countries,” Journal of Development Economics, 51, pp.387-411.

Demirguc-Kunt, A., Beck, T., & Levine, R., (1999), “A New Database on Financial Development and Structure”, International Monetary Fund, WP 2146.

Demirguc-Kunt, A., & Beck, T., May (2009), “Financial Institutions and Markets Across Countries over time: Data and Analysis”, World Bank Policy Research Working Paper No. 4943.

Gries, T., Kraft, M., & Meierrieks, D., (2009), “Linkages between financial deepening, trade openness, and economic development: causality evidence from Sub-Saharan Africa”, World Development, 37(12), pp. 1849-1860.

Im, K.S., Pesaran, M.H., & Shin, Y., (2003), “Testing for unit roots in heterogeneous panels”, Journal of Econometrics", 115, pp.53-74.

IMF Statistics Department, (2008, October), “International Financial Statistics Yearbook, 2008”, IMF

Kablan, S., (2010), “Banking Efficiency and Financial Development in Sub-Saharan Africa”, IMF Working Paper /10/136

Khim, V. L. S., (2004), “Which lag selection criteria should we employ”, Economics Bulletin, 3(33), pp.1-9.

King, R.G., & Ross, L., (1993), “Finance and Growth: Schumpeter Might Be Right”, Quarterly Journal of Economics, 108, pp. 717-737.

Kumbhakar, S.C. and Mavrotas, G., (2005), “Financial Sector Development and Productivity Growth”. UNUWIDER Research Paper: 2005/68, World Institute for Development Economics Research at the United Nations University.

Levin, A., Lin, C.F., & Chu, C.S., (2002), “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, 108, pp. 1-24.

Maddala, G.S., & Wu, S. (1999), “A Comparative Study of Unit Root test with Panel Data and New Simple test”, Oxford Bulletin of Economics and Statistics, 61, pp. 631-652.

Steel, W.F. (2006), “Extending Financial Systems to the poor: What strategies for Ghana”,Paper presented at the 7th ISSER-Merchant Bank Annual Economic Lectures, University of Ghana, Legon.

World Bank (1989), World Bank Development report 1989, New York, Oxford University Press.