By Charles A. E. Goodhart (eds.)

ISBN-10: 0230374271

ISBN-13: 9780230374270

ISBN-10: 134951487X

ISBN-13: 9781349514878

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Thus, if we a re to spea k of fina ncial developmen t co ntr ibuti ng to growth, the co ncept of development we have in mind m ust be far more su btle and complex than simp ly size. Indeed size measu res can be quite mis lead in g in a number of ways whi ch will now he illu st rated by reference to several specific country experiences. Ch ino Among large countries, China ha s th e deepest banking system of all (bar a few places like Luxe mbourg which are im portant offshore centers and the scale of whose banking system is based on the export of financial services).

Do they also contribute to a greater lowering of pove rty than im plied by their effect on growt h? The answe r is tha t ap pare ntly they do not. Addi ng stoc k market cap italizatio n and/or market turnover to the basic equa tion does not significan tly alter fil or the ot her coefficients and the new variab les are ne t sign ificant. 10 The empi rical correl atio n which we have detected is suggesti ve, rather tha n conclusive evide nce tha t e mphasizing finan cial development is benign in regard to pover ty in tha t it is marc likely to reduce poverty tha n the average pro-growth initiative.

Noting such cha racte ristics as the high salaries paid on average in the fin ancial sector, t hese observers suppose that if the financial sector prospers, th is may mea n a deterioratio n in the distribution of in come: mo re for well-paid in vestment ban kers, not m uch for their drivers or clea ners. Rajan and Zingal es (2003b) cite Tom Wolfe's novel The Bonfire of the Va"ities as illustrative of th e widely held view that fin ance benefits only, or main ly, th e rich . If th is casual prejudice was bo rne out in reality then one would become somewhat ambivalent abo ut relying on finan cial deve lopment as a prio rity instrument for tacklin g poverty in deve loping economies.

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Financial Development and Economic Growth: Explaining the Links by Charles A. E. Goodhart (eds.)


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