The impact of the financial sector on economic development: Some cross-section evidence

Conclusion This paper has attempted to analyze the effect of the development of the financial sector, as reflected by the extent of financial deepening, in the economic development of countries. The Theoretical framework integrating financial growth to real growth is basically an adaptation of the Gurley-Shaw theory of finance in the development context, but with emphasis placed upon the supply-leading role of the financial sector. The empirical results of this study although not conclusive, indicate that financial deepening leads to a higher rate of capital accumulation and a higher level of per capita income. The lack of definitiveness of our evidence in support of the financial theory of economic development is due to a lack of comparable data on financial institutions, other than banks, for the different countries. Thus, although our study lends support to the supply-leading thesis, further judgement of the thesis must await more detailed empirical analyses.     

Financial liberalization in developing countries

This article shows that higher interest rates increase the extent of financial intermediation while increased financial intermediation raises the rate of economic growth. Further, increases in interest rates have favorable effects on investment efficiency and on economic growth. It is noted, however, that excessively high interest rates will have unfavorable economic effects. Such a situation can be avoided if the liberalization of the banking system takes place under conditions of monetary stability accompanied by the government supervision of banks. Bela Balassa has been professor of political economy at the Johns Hopkins University and consultant at the World Bank since 1966. His recent books includeNew Directions in the World Economy (Macmillan, 1989) andComparative Advantage, Trade Policy and Economic Development (Harvester Wheatsheaf, 1989).     

An oasis of democracy in an authoritarian sea? Civil society,social, and institutional trust in Georgia

We examine whether the existence of civil society in Georgia has promoted social and institutional trust in the population. As much of the literature suggests, Georgia is different from its neighbors in that civil society development is more advanced. Does participation in civil society lead to more social and institutional trust? Using survey data from the Caucasus Barometer and the World Values Survey, we find that attitudes regarding social and institutional trust are more developed in Georgia than in its neighbors, and that activity in voluntary organizations is positively associated with social and institutional trust in Georgia.     

Chinese views of global economic governance

China’s rise and America’s global retreat have made China’s role in global governance more important than ever before. By analysing Chinese (mainly academic) literature, this article studies contemporary Chinese views of global economic governance. It finds that the 2008 financial crisis is a notable point of the Chinese discourse. In addition, dialogue platforms – the G20 in particular – rather than key institutions of global economic governance such as International Monetary Fund (IMF), World Bank and Word Trade Organization (WTO) win overwhelming attention in the Chinese discourse. Chinese views of global economic governance also highly value the role of the state, while paying less attention to Non Governmental Organisations (NGO) and civil society. Overall, this article highlights a diverse, shifting and sometimes contradictory Chinese discourse on global economic governance, which helps to develop a more accurate understanding of China’s ambition in global economic governance.     

Oligarchic rule and best practice migration management: the political economy origins of labour migration regime of the Philippines

The Philippine labour migration regime has been praised as one of the best examples of government-led migration management in the developing world, with some of the most extensive policies and bureaucratic organisations to manage and protect its citizens working abroad. However, not much knowledge has been accumulated that explains its origins or why it emerged in the Philippines and not in other large-scale migrant-sending countries. Contrary to current explanations that emphasise the economic benefits of labour migration and civil society mobilisation, this paper highlights the migration regime's compatibility with the political economy interests of the country's ruling elites. Bringing together the country's two important political and economic features, oligarchic rule and labour export, this paper suggests that the unique genesis of the Philippines’ migration regime casts doubts on the replicability of the Philippine model in other labour-sending countries as currently pursued by the international development community.     

New geographies of financial power: global Islamic finance and the Gulf

Abstract

A growing body of critical scholarship has examined the recent growth of Islamic finance (IF), unpacking its ethical assertions and highlighting its close affinities with conventional financial instruments. Receiving less attention, however, is the relationship between the global expansion of IF and the emergence of new financial actors and zones of accumulation. This article situates the evolution of global Islamic circuits alongside processes of capital accumulation in the Gulf Cooperation Council (GCC), arguing that contemporary IF is deeply bound up with the internationalisation of capital groups headquartered in the GCC. This is evident in the internationalisation of GCC Islamic banks, which has given the Gulf a powerful foothold in new markets and a variety of sectors that are typically considered ‘non-financial’. Simultaneously, the expansion and geographical diversification of Islamic debt (sukuk) issuance is refashioning the Gulf’s relationships with other global spaces, a process that looks set to intensify given the widespread push to utilise IF in development financing. Seen from this perspective, the global growth of IF sits in a mutually constitutive relationship with patterns of capital accumulation in the Gulf, as well as the region’s burgeoning weight within (and new linkages to) the global economy.     

Dynamics of Indonesian democratisation

Financial sector liberalisation has led to market failure on a massive scale. In industrial countries market failure led to the Great Financial Crisis that erupted in 2007 and continues into its fifth year. In developing countries liberalised financial markets have failed to provide access to financial services for the vast majority of households and firms. Small and medium-sized enterprises (smes), which are critical for employment, income creation and economic development, are particularly excluded by liberalised private financial markets. Market failure necessitates government intervention. To enhance smes' financial access requires an activist role by governments—not only by ensuring an enabling policy framework and financial infrastructure for smes, but also by supporting direct provision of financial services through national development banks and directed credit programmes. More broadly the crisis also provides an opening for a neo-structuralist development paradigm to replace the failed Washington Consensus. In this context activist financial sector policies should be integrated with industrial sector strategies.     

Interest rates,saving, investment and growth in mexico 1960–90: Tests of the financial liberalisation hypothesis

The theory of financial liberalisation argues that rising real interest rates induces more saving and investment and therefore acts as a positive stimulus to economic growth. This hypothesis is tested for Mexico over the period 1960–90, making the important distinction between financial saving and total saving. Financial saving is found to be positively related to real interest rates partly through capital flows and partly through domestic asset substitution, but total saving is invariant with respect to real interest rates. Investment is positively related to the supply of credit from the banking system, but the net effect of interest rates on investment is negative. Furthermore, taking McKinnon's ‘virtuous circle’ model of economic growth shows no favourable effects of interest rates on economic growth. It is concluded that any favourable effect of financial liberalisation and higher real interest rates on economic growth must come through raising the productivity of investment.     

Corporate governance reform: the case of Korea

Due partly to the expectations of foreign investors, the reform of corporate governance following the 1997 financial crisis has largely been in line with the Anglo-American outsider model at the expense of Korea's traditional insider model. The increased role of the (equity) market vis-à-vis banks and shareholder activism, NGOs and foreign investors has helped to constrain ‘tunnelling’ by controlling shareholders. While the complicated ownership structures have yet to be resolved, the governance paradigm of chaebols has gradually changed from one dominated by family or controlling shareholders to a system in which the power of professional managers and monitoring of markets have increased substantially.     

Central banks under stress: Reputation,accountability and regulatory coherence

This symposium homes in on an area of public administration that has been through a period of significant change in the last ten years. Since the global financial crisis, central banks have expanded their operations in financial markets, buying up vast quantities of assets as part of expansive monetary policy strategies. They have also played a leading role in the reform of financial regulation and have been entrusted with enhanced authority to supervise financial institutions. This activity has taken place amid heightened political contestation, with central banks increasingly viewed as the quintessence of a technocratic mode of governance that eschews traditional democratic control. The purpose of this symposium is to consider how central banks’ reputation, accountability and regulatory roles have changed since the financial crisis, and what those changes tell us about the balance of power between independent regulatory agencies and elected policy‐makers.     

Financial Development and Poverty Reduction: Can There be a Benefit without a Cost?

This article investigates how financial development helps to reduce poverty directly through a distributional effect, beyond its indirect effect through economic growth. The results obtained with data for a sample of developing countries from 1966 through 2000 suggest that the poor benefit from the ability of the banking system to facilitate transactions and provide savings opportunities (through the McKinnon ‘conduit effect’) but to some extent fail to reap the benefit from greater availability of credit. Moreover, financial development is accompanied by financial instability, which is particularly detrimental to the poor. Nevertheless, the benefits of financial development for the poor outweigh the cost.     

Making a Difference? NGOs and Civil Society Development in Russia

The role of non-governmental organisations (NGOs) in the development of Russia's civil society has been the focus of academic study since the collapse of the Soviet Union in 1991. In light of this literature, this article aims to assess the impact of the movement that has most often been seen as very promising for Russia's future civil society development—the environmental movement—by utilising research undertaken in Samara Oblast’ of the Russian Federation. While the results do reveal some positive contributions to civil society development in Russia, they also exhibit many similarities with other studies in the extant literature, illustrating the relative weakness of Russia's social movements in the area of civil society development.     

The growth of multinational banking,the Euro‐currency market and their effects on developing countries

This paper describes the recent rapid growth of transnational banking and lending, as well as it causes. Since the early seventies, a growing proportion of this lending has been oriented towards developing countries. The principal causes for this trend are outlined, and the changes in the mechanisms of the ‘Eurodollar market’ which made access to it easier for developing countries are described. The trends prevailing in developing countries’ financing throughout the seventies are then examined. Finally, the economic and political effects of the rapid growth in lending by private banks to the Third World are discussed.     

Illiberal democracy and the future of opposition in Singapore

There are quite a number of ways by which politics in Singapore can be meaningfully approached. One perspective is to focus on the guiding beliefs and values of the People’s Action Party (PAP) governing elite and its nature of state governance since its assumption of power in 1959; it has ruled the state continuously since then. Its success in turning Singapore into a modern metropolis the envy of many has helped to buttress and legitimise its rule. Despite the growing criticisms, especially by the opposition parties, of the highly regulated manner by which the country has been managed, the PAP government, led by its first and former prime minister Lee Kuan Yew, and now by Goh Chok Tong, has unrepentantly stuck to its long-held world-view and governing paradigm. To the government, Singapore’s rapid economic growth and political stability could not have been achieved if the country were to follow the Western liberal democratic path and its attendant notions of development. While gradually allowing for greater citizen participation in the formulation of policies in more recent times, the present leadership, mindful of opening up a Pandora’s box, is still cautiously wary of the growth of a more pluralistic political environment; hence, its preference for what can be described as an illiberal, (soft) authoritarian democratic culture. Given this particular regime mindset and its parameters of governance, it is indeed a Herculean task for Opposition parties to make any significant inroads in the Republic’s future politics. However, all may not be lost for opposition parties and for those aspiring to see the evolution of a civil society. If they can capitalise on some probable future happenings—such as intra-party PAP factionalism consequent to the departure of the ‘old guard’, a prolonged economic downturn, and the rise of a new educated, IT generation—then their political future may hold some promise.     

Foreign direct investment,financial development and economic growth

This article argues that the development of the financial system of the recipient country is an important precondition for FDI to have a positive impact on economic growth. A more developed financial system positively contributes to the process of technological diffusion associated with FDI. The article empirically investigates the role the development of the financial system plays in enhancing the positive relationship between FDI and economic growth. The empirical investigation presented in the article strongly suggests that this is the case. Of the 67 countries in data set, 37 have a sufficiently developed financial system in order to let FDI contribute positively to economic growth. Most of these countries are in Latin America and Asia.     

Policy Coalitions,Economic Reform and Military Power in Ecuador and Venezuela

Military coups and coup attempts, as well as the establishment, or continuation, of economic/social development roles for the military far outside traditional security missions have been a part of civil–military relations in Ecuador and Venezuela since 1990. The military's greater role in Ecuador and Venezuela has in part been a consequence of the failure of neoliberal and globalist policy coalitions to establish and maintain a hegemonic consensus over political power and national policy. This failure has undermined progress in orienting the military in a ‘democratic’ direction that prioritises traditional security roles under the ultimate command of civilian authorities. It has also allowed for competing models of civil–military relations to emerge that draw upon nationalist or socialist models of military power and democracy.     

Collaboration,confrontation, and controversy: the politics of monument restoration in Georgia and the case of Bagrati Cathedral

This paper examines the history of the restoration, or more accurately, reconstruction of Bagrati Cathedral in western Georgia. Constructed in 1003, Bagrati Cathedral is an important cultural monument in the political and architectural history of Georgia. Destroyed by an explosion in 1691, the cathedral was inscribed on UNESCO’s World Heritage List in 1994 in its ruined state. However, the Georgian government under President Mikheil Saakashvili and Georgian Orthodox Church (GOC) officials made the reconstruction and reconsecration of the cathedral a priority. The reconstruction of Bagrati Cathedral, completed in September 2012, brought the differing aims of Georgian politicians, GOC officials, and architectural historians – the major players in the process – into sharp focus. This paper maintains that the rebuilding of Bagrati Cathedral was part of Saakashvili’s political agenda, which merged with the interests of the GOC and worked against the objectives of architectural historians and the aims of academic principles of restoration and preservation. The result is that Bagrati has been rebuilt but is under threat of removal from the World Heritage List. The story of Bagrati’s reconstruction has implications for the future of monument preservation and restoration in Georgia.     

Growth,governance and corruption in Bangladesh: a re-assessment

This paper revisits Bangladesh’s ‘double paradox’ – sustained macroeconomic growth despite the poor state of governance and a high level of corruption – by critically reviewing trends in governance and corruption indicators during 1990–2017 vis-à-vis other South Asian countries. In addition, we draw upon data from a purposefully designed survey of manufacturing firms to assess the state of economic governance in the export-oriented ready-made garments (RMG) sector, the country’s main source of foreign exchange and driver of economic growth. Consistent with the country’s poor ranking in a host of indicators of investment climate and corruption perception, in-depth interviews of RMG factory owners confirm the high cost of doing business in various forms. We also find no evidence of growth-mediated improvements in indicators of governance. On the contrary, our review of print media reports suggests a growing governance deficit in the country’s financial sector. We conclude by discussing the implications of our findings for the country’s future growth as well as performance of the RMG sector.     

The Institutional Foundations of China’s Unbalanced Economy

China has become a fast-growing economy with an unbalanced economic structure. Economic policies, especially fiscal and financial policies, contribute to the current growth model by depressing household disposable income and reducing the social services provided by the government. Laws that have been used by the government to subsidise investment and production by distorting factor markets are also to blame. Finally, rebalancing China’s growth pattern has proven to be extremely difficult due to political obstacles, including pressure from interest groups, gridlock caused by factional politics, and ideological discrimination against private entrepreneurs.     

Russian banks’ profit strategies: the evidence from various types of banks

This paper offers an analysis of profit strategies pursued by Russian banks depending on their ownership type, including federal state banks, banks of mixed ownership, banks connected to enterprises producing for the final consumers, and regional pocket banks owned by one particular business group or enterprise. The paper outlines a set of factors that capture a range of potential hindrances on the way to banks’ involvement in Russian economy. It traces how the characteristics of the state regulation and peculiarities of the economic sectors affect the proliferation of certain type of banks—pocket banks—at the expense of others. It looks into how the various types of banks function under the given set of political and economic constraints, and how these constraints shape the banking system in Russia and its relationships with the enterprises and sectors.