What Matters for Financial Development and Stability?
July 24, 2015
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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.
Subject: Banking crises, Commercial banks, Econometric analysis, Estimation techniques, Financial crises, Financial institutions, Financial markets, Financial sector development, Population and demographics
Keywords: Banking crises, banking sector, Commercial banks, d GMM, difference GMM estimator, Estimation techniques, financial development, financial possibility frontier, Financial sector development, financial stability, Global, real GDP, s GMM, standard deviation, system GMM estimation, system GMM estimator, WP
Pages:
44
Volume:
2015
DOI:
Issue:
173
Series:
Working Paper No. 2015/173
Stock No:
WPIEA2015173
ISBN:
9781513501178
ISSN:
1018-5941
