Finance in Lower Income Countries: An Empirical Exploration

By Poonam Gupta, Thierry Tressel, Enrica Detragiache

August 1, 2005

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Poonam Gupta, Thierry Tressel, and Enrica Detragiache. Finance in Lower Income Countries: An Empirical Exploration, (USA: International Monetary Fund, 2005) accessed September 20, 2024

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 paper considers how a comprehensive set of factors relates to financial sector performance in low-income countries (LICs). It finds that corruption and inflation are associated with a shallower and less efficient financial system, while legal origin and characteristics of the supervisory and regulatory framework have no significant relationship with performance. Moreover, better contract enforcement and information about borrowers are associated with more private sector credit. Some results are surprising. Countries with more foreign bank penetration seem to have shallower and not necessarily more efficient financial sectors, while 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, more research is needed to ascertain the direction of causality and identify channels of transmission before deriving policy implications.

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

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/167
Stock No:

WPIEA2005167
ISBN:

9781451861860
ISSN:

1018-5941

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