Finance in Lower Income Countries: An Empirical Exploration
IMF Working Papers, August 1, 2005
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Bibliographic details
- Authors: Poonam Gupta, Thierry Tressel, Enrica Detragiache
- Published: August 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861860.001
Authors and Publication
- By. Poonam Gupta, Thierry Tressel, Enrica Detragiache
- August 1, 2005
- IMF Working Papers, Working Paper No. 2005/167
- Pages: 49
- Volume: 2005
- Issue: 167
- DOI: https://doi.org/10.5089/9781451861860.001
- Stock No: WPIEA2005167
- ISBN: 9781451861860
- ISSN: 1018-5941
Summary — main research question and approach
- Considers how a comprehensive set of factors relates to financial sector performance in low-income countries (LICs).
- Examines relationships between institutional, macroeconomic, and market-structure variables and measures of financial depth and efficiency.
Key empirical findings
- Corruption and inflation are associated with a shallower and less efficient financial system.
- Legal origin and characteristics of the supervisory and regulatory framework have no significant relationship with performance.
- Better contract enforcement and information about borrowers are associated with more private sector credit.
- Countries with more foreign bank penetration seem to have shallower and not necessarily more efficient financial sectors.
- A larger presence of state-owned banks is correlated with more bank deposits and lower overhead costs, even after controlling for market size and concentration.
- Although these relationships are robust, the direction of causality and channels of transmission are not established.
Surprising or notable results highlighted by the authors
- Foreign bank penetration correlates with shallower financial sectors and not necessarily with greater efficiency.
- State-owned bank presence correlates with higher deposits and lower overhead costs, contrary to some expectations.
Policy relevance and research needs
- The paper refrains from definitive policy prescriptions, emphasizing that more research is needed to:
- Ascertain the direction of causality for the documented relationships.
- Identify channels of transmission before deriving policy implications.
Subject areas and keywords
- Subject: Banking, Commercial banks, Credit, Economic sectors, Financial institutions, Financial markets, Financial sector, Financial sector development, Foreign banks, Money
- Keywords: bank, bank activity, bank assets, bank efficiency, bank Efficiency, bank ownership, bank privatization, Commercial banks, Credit, deposit, East Asia, Financial development, Financial sector, Financial sector development, Foreign banks, low income countries, Middle East, North Africa, private sector credit, South Asia, standard deviation, state bank, Sub-Saharan Africa, WP
Source: IMF Working Paper — "Finance in Lower Income Countries: An Empirical Exploration" (Working Paper No. 2005/167), authors Poonam Gupta, Thierry Tressel, Enrica Detragiache, August 1, 2005.