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Toward a theory of optimal financial structure

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  • Lin, Justin Yifu
  • Sun, Xifang
  • Jiang, Ye

Abstract

Each institutional arrangement in a financial system has both advantages and disadvantages in mobilizing savings, allocating capital, diversifying risks, and processing information when facilitating financial transactions. Meanwhile, the factor endowment in an economy at each stage of its development determines the optimal industrial structure in the real sector, which in turn constitutes the main determinant of the size distribution and risk features of viable enterprises with implications for the appropriate institutional arrangement of financial services at that stage. Therefore, there is an endogenously determined optimal financial structure for the economy at each stage of development.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5038.

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Date of creation: 01 Sep 2009
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Handle: RePEc:wbk:wbrwps:5038

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Related research

Keywords: Banks&Banking Reform; Debt Markets; Access to Finance; Financial Intermediation;

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References

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