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Domestic Financial Development in Emerging Economies: Evidence and Implications

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  • Ettore Dorrucci
  • Alexis Meyer-Cirkel
  • Daniel Santabárbara

Abstract

We construct, on the basis of an original methodology and database, composite indices to measure domestic financial development in 26 emerging economies, using mature economies as a benchmark. Twenty-two variables are used and grouped according to three broad dimensions: (i) institutions and regulations; (ii) size of and access to financial markets and (iii) market performance. This new evidence aims to fill a gap in the economic literature, which has not thus far developed comparable time series including both emerging and mature economies. In doing so, we provide a quantitative measure of the – usually considerable – scope for the selected emerging countries and regions to “catch up” in financial terms. Moreover, we find evidence that a process of financial convergence towards mature economies has already started in certain emerging economies. Finally, we conduct an econometric analysis showing that different levels of domestic financial development tend to be associated with the building up of external imbalances across countries. JEL Classification: F3, F4, G1, G2, E21, E22, C82.

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Bibliographic Info

Paper provided by European Central Bank in its series Occasional Paper Series with number 102.

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Length: 63 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:ecb:ecbops:20090102

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Related research

Keywords: Financial development; index construction; commodity and oil-exporting countries; G20; major emerging economies; financial catching up; global imbalances.;

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Cited by:
  1. Ila Patnaik & Ajay Shah & Rudrani Bhattacharya, 2011. "Monetary policy transmission in an emerging market setting," IMF Working Papers 11/5, International Monetary Fund.
  2. Ajay Shah & Ila Patnaik, 2010. "Asia Confronts the Impossible Trinity," Working Papers id:2402, eSocialSciences.
  3. Marcel Fratzscher, 2011. "Capital Controls and Foreign Exchange Policy," Working Papers Central Bank of Chile 652, Central Bank of Chile.
  4. Philip R. Lane IIIS, Trinity College Dublin and CEPR, 2009. "Innovation and Financial Globalisation," The Institute for International Integration Studies Discussion Paper Series iiisdp299, IIIS.
  5. Jean-Pierre Allegret & Sana Azzabi, 2012. "Développement financier, croissance de long terme et effets de seuil," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(5), pages 553-581, December.
  6. Hsueh, Shun-Jen & Hu, Yu-Hau & Tu, Chien-Heng, 2013. "Economic growth and financial development in Asian countries: A bootstrap panel Granger causality analysis," Economic Modelling, Elsevier, vol. 32(C), pages 294-301.
  7. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.
  8. Kar, Muhsin & NazlIoglu, Saban & AgIr, Hüseyin, 2011. "Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis," Economic Modelling, Elsevier, vol. 28(1-2), pages 685-693, January.
  9. Fornari, Fabio & Stracca, Livio, 2013. "What does a financial shock do? First international evidence," Working Paper Series 1522, European Central Bank.

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