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Financial Structures Impact on Economic Development: A Quantitative Analysis

This study challenges the traditional view that financial structure has no bearing on a country's growth, showcasing that it is indeed linked to economic activity, especially at different GDP per capita levels. The research emphasizes the significance of the financial structure gap and its association with GDP per capita, even when considering the influence of banks and stock markets. It highlights the need to diversify sampling criteria beyond income to determine the optimal financial structure. Additionally, the study delves into issues of endogeneity, exploring how banks, stock markets, and economic development interact to impact GDP per capita growth rates. The findings offer insightful quantitative analyses and suggest avenues for future research.

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Financial Structures Impact on Economic Development: A Quantitative Analysis

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  1. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011

  2. The contribution • In previous study, • financial structure NOT relevant for growth … for the average country

  3. The contribution • In previous study, • financial structure is NOT relevant for growth … for the average country • In this study, • financial structure IS related with “economic activity” BUT differently for different levels of GDP per capita • financial structure GAP does matter, even controlling for banking and stock market

  4. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development

  5. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development

  6. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development • Both are sensible… yet “sensitivity” analysis denotes causation in the first sense

  7. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries

  8. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the regression fit of the financial structure ratio be better for richer countries

  9. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the fit of the financial structure ratio be better for richer countries • Then, by construction, the FS gap is linked to GDP per capita

  10. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the fit of the financial structure ratio be better for richer countries • Then, by construction, the FS gap is linked to GDP per capita • Need to use criteria other than income for choosing the sample to derive optimal financial structure

  11. Question 1 • Why not growth? • “Economic activity” in the paper is represented by GDP per capita levels • In previous work, it had been the growth rate of GDP per capita • When using conditioning set, GDP per capita in 1980 is used as regressor. Still…

  12. Question 2 • In the quantile regressions, why including only one regressor? • Both Private credit and Stock market value in the (first set of ) quantile regressions for GDP per capita

  13. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011

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