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Unformatted text preview: 188 Manuela W. Armenta 9 Manuela W. Armenta is a M.A. Candidate at the Norman Paterson School of Inter- national Affairs, Carleton University ([email protected]). T HE F INANCIAL S ECTOR AND E CONOMIC D EVELOPMENT : B ANKING ON THE R OLE OF H UMAN C APITAL Manuela W. Armenta Evidence suggests that human capital development contributes to the stability of banks. Unfortunately, developing countries, both pre- and post-liberalization, often suffer from an inadequate supply of capable professionals. This situation threatens the potentially positive relationship between financial liberalization and economic growth. It is therefore urgent that developing states develop policies aimed at addressing the supply and de- mand-side requirements of the financial sector. Such policies must target the development of professionals with both ap- propriate academic backgrounds in business and the requisite on-the-job skills. Public-private solutions are advocated as the most efficient and effective approach to the development of comprehensive policies in this regard. I NTRODUCTION The financial sector and its role in the process of economic development has attracted notable attention since the early 1990s. In particular, the crucial need for a stable banking system was highlighted in the wake of the Asian financial crisis of the late 1990s. The rapid influx of short-term, specula- tive capital flows to Asian economies was a major contributing factor to the crisis. States with stronger domestic financial sectors and particularly 189 The Financial Sector and Economic Development: Banking on the Role of Human Capital robust banks, however, better absorbed the ripple effects of the external shock. Increasing the openness of financial markets via liberalization may not be positively related to economic growth unless banks are stable and sophisticated enough to absorb international investment, competition, and negative shocks. This article examines whether strengthening human capital in banks can bolster the integrity and stability of domestic banks and thereby improve their ability to respond to the complexity and volatil- ity of international financial markets. This article does not argue against liberalization; rather, it employs a methodology that analyzes the empirical, theoretical, and industry condi- tions in order to investigate the importance of human capital formation and related policies to the development of stable and sophisticated domestic commercial banks and long-run economic growth. The article argues that human capital is crucial to bank stability, a factor that has been overlooked in the financial liberalization literature. Although there is a positive relation- ship between human capital formation and financial sector development, many developing states lack graduates and professionals with the academic and on-the-job training necessary to operate efficient banks. This article first provides an in-depth examination of the potential role of the state and...
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This note was uploaded on 02/01/2012 for the course POLS 494 taught by Professor Garymoncrief during the Fall '11 term at Boise State.
- Fall '11