OptimalFinancialStructure-IEA

OptimalFinancialStructure-IEA - IEA Panel on Development...

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1 IEA Panel on Development Strategy and Finance Optimal Financial Structure and the Role of the State Beijing, July 5, 2011 Justin Yifu Lin Chief Economist and Senior Vice President The World Bank
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Structure of Presentation What is the optimal financial structure for economic development? What is the role of the state in finance? Concluding Remarks 2
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3 Definition and Observation of financial Structure Definition of “Financial Structure”: The composition and relative importance of various financial institutional arrangements. I will focus on two dimensions of financial structure: the relative importance of banks and financial markets in the financial system; the distribution of banks of different size in the banking sector. Empirical observations: The equity markets becomes more active relative to banks as a country become richer Small businesses has no access to equity market and generally have less access to large banks’ loan facilities.
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4 Comments on related literature Drawback of the current literature: Supply side approach--Starts from examining the characteristics of various financial arrangements and then discusses the likely effects of different financial systems on economic growth. The financial structure is not relevant The characteristics of the real economy are ignored. I propose a demand side approach: Starting from analyzing the characteristics of real economy and the real economy’s demand for financial services. I argue that the effectiveness of a financial structure is
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