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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.

Suggested Citation

  • Lin, Justin Yifu & Sun, Xifang & Jiang, Ye, 2009. "Toward a theory of optimal financial structure," Policy Research Working Paper Series 5038, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5038
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    8. Nurmakhanova, Mira & Elheddad, Mohamed & Alfar, Abdelrahman J.K. & Egbulonu, Alloysius & Zoynul Abedin, Mohammad, 2023. "Does natural resource curse in finance exist in Africa? Evidence from spatial techniques," Resources Policy, Elsevier, vol. 80(C).
    9. Seven, Ünal & Yetkiner, Hakan, 2016. "Financial intermediation and economic growth: Does income matter?," Economic Systems, Elsevier, vol. 40(1), pages 39-58.
    10. Lin, Justin Yifu & Fardoust, Shahrokh & Rosenblatt, David, 2012. "Reform of the international monetary system : a jagged history and uncertain prospects," Policy Research Working Paper Series 6070, The World Bank.
    11. Liu, Guanchun & Zhang, Chengsi, 2020. "Does financial structure matter for economic growth in China," China Economic Review, Elsevier, vol. 61(C).
    12. Kurronen, Sanna, 2015. "Financial sector in resource-dependent economies," Emerging Markets Review, Elsevier, vol. 23(C), pages 208-229.
    13. Kurronen, Sanna, 2018. "Natural resources and capital structure," Economic Systems, Elsevier, vol. 42(3), pages 385-396.

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