What Matters for Financial Development and Stability?

Author/Editor:

Raja Almarzoqi ; Sami Ben Naceur ; Akshay Kotak

Publication Date:

July 24, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This study aims to identify policies that influence the development of financial institutions as measured across three dimensions: depth, efficiency, and stability. Applying the concept of the financial possibility frontier, developed by Beck & Feyen (2013) and formalized by Barajas et al (2013a), we determine key policy variables affecting the gap between actual levels of development and benchmarks predicted by structural variables. Our dynamic panel estimation shows that inflation, trade openness, institutional quality, and banking crises significantly affect financial development. Our analysis also helps identify potential complementarities and trade-offs for policy makers, based on the effect of the policy variables across the different dimensions of financial development.

Series:

Working Paper No. 15/173

Subject:

Developing countries Development Financial institutions Financial sector Financial stability

English

Publication Date:

July 24, 2015

ISBN/ISSN:

9781513501178/1018-5941

Stock No:

WPIEA2015173

Format:

Paper

Pages:

44

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