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Toward a theory of optimal financial structure


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


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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    Cited by:

    1. Seven, Ünal & Yetkiner, Hakan, 2016. "Financial intermediation and economic growth: Does income matter?," Economic Systems, Elsevier, vol. 40(1), pages 39-58.
    2. Lin, Justin Y. & Sun, Xifang & Wu, Harry X., 2015. "Banking structure and industrial growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 131-143.
    3. Kurronen, Sanna, 2015. "Financial sector in resource-dependent economies," Emerging Markets Review, Elsevier, vol. 23(C), pages 208-229.

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

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