Luiz Ricardo Cavalcante
This chapter discusses the role played by the Brazilian Development Bank (BNDES) based upon a survey of its costs and benefits reported in the literature. It provides some theoretical background for the creation and the existence of development banks, using this background to support a brief discussion about the long-term context that marked the bank’s evolution as well as the contemporary issues concerning its role in the Brazilian economy. The author argues that a national development bank such as the BNDES contributes to increasing capital formation, as it provides credit at more favorable conditions to selected projects. However, the author also argues that the presence of the BNDES loans forces the Central Bank to raise interest rates to a level that otherwise would be lower.
This article discusses political economy issues that arise from distributive conflicts and that govern economic policy in India. The article notes that contrary to popular perception, India may be one of the most unequal societies in the world when land and education inequality are so considered. Further, because the Gini coefficient in India is based on consumption expenditure, it tends to understate inequality because the rich tend to save more than the poor. The article then asks whether inequality matters for economic growth and argues that it clearly does, implying that equity and efficiency often go together, contrary to the opposite presumption of much of mainstream economics. The article essentially gives a qualitative and broad account of the different types of distributive conflicts that have become prominent in the process of economic development in India and how their influence will shape the nature of problems that afflict economic policy making and implementation.
Asli Demirgüç-Kunt, Leora Klapper, and Peter van Oudheusden
This chapter discusses the motivation to expand financial inclusion in Africa, the obstacles faced in expanding formal financial services, and the opportunities to do so offered by new delivery channels and technology. Despite the financial sector growth in Africa over the past decades, many individuals and firms are still excluded from access to formal financial services. Ownership of accounts and the use of formal savings and credit are low in Africa, both in absolute terms and relative to other developing regions. However, the low use of formal financial products does not reflect a lack of demand for financial services. Instead, African individuals predominantly rely on informal channels, such as savings with community savings groups and borrowing from family and friends. Yet new innovations have been shown to bring about dramatic changes which have encouraged people to engage in financial transactions by lowering entry barriers, reducing costs, and expanding access.
Kalu Ojah and Odongo Kodongo
The preponderance of recent evidence on the nexus between financial development and economic growth suggests a finance-leading-growth relationship. This kind of nexus is particularly important to Africa, where sustainable growth has been more elusive than in other continents. This chapter examines the current state of financial development in Africa, especially as regards its relevance as a mechanism for eliciting sustainable economic growth. It analyses the public equity, private equity, private debt, and public debt markets, and identifies the shortcomings of key financial markets across Africa, and suggests policies that can enable these markets to live up to their promise of supporting sustainable economic growth.
Enisse Kharroubi and Luiz A. Pereira da Silva
This chapter explores the interrelationships between financial reforms, financial development, and structural change. More specifically, it considers the impact of financial reform on changes in labour productivity and whether liberalizing the functioning of the financial sector and lifting a number of regulations through financial reforms affect structural change and growth. In this chapter, structural change is defined as the contribution of labour reallocation across sectors to aggregate productivity growth and the difference-in-difference methodology is used to compare the evolution of productivity growth—and its different sources including structural change—before and after a financial reform. This evolution is also contrasted with cases in which financial reform is absent. Drawing on a sample of advanced and emerging market economies, the chapter shows that labour productivity accelerates following periods of intense financial reforms. The results generally suggest that financial reforms positively affect productivity growth, in part through the contribution of structural change.
In recent years Ethiopia has captured headlines for the impressive social and economic progress and for government commitment to and ownership of the development process. Domestic and external resources have been mobilized and channelled to the priority projects identified in the Growth and Transformation Plan (GTP). Despite these efforts, the gap between domestic saving and investment has been growing, requiring additional resources to finance the resource gap. Foreign resources play an important role in financing investment in Ethiopia, creating dependence on unpredictable financing, and this chapter underlines three points: (a) the strategic significance of mobilizing domestic resources to finance essential public services and investment programmes; (b) the need to explore new financing instruments to finance strategically defined investment programmes; and (c) the need to continue industrialization and diversification, and increase export earnings to resolve the foreign exchange constraint threatening to derail Ethiopia’s desire to become a middle-income country by 2025.
João Carlos Ferraz, Michael Mortimore, and Márcia Tavares
Historically, foreign direct investment (FDI) has had an ambivalent role in terms of its contribution to development, especially how it shaped the productive sector in Latin America, such that it became a recurrent theme in the region's economic literature. FDI flows to Latin America have soared since the 1990s, converting it into an even more important variable. More recently, there has been a smaller but equally unprecedented rise in outward direct investment by Latin American foreign investors. This creates new policy challenges for productive development in the region. This chapter provides an overview of inward and outward FDI patterns in Latin America since the mid-1990s. The second section looks at inward FDI and the third section deals with outward FDI over this period. The fourth section briefly summarizes the main findings and contemplates policy challenges.
Infrastructure Finance: Mobilizing Long-Term Liability Embedded Funds from International Institutional Investors to Emerging Markets
Kevin Lu and Cledan Mandri-Perrott
This chapter examines the current investment gap in the emerging market and developing economy (EMDE) infrastructure market and proposes innovative solutions to help close the gap and supplement local financing by mobilizing international financial sources to support EMDE projects. The chapter highlights the importance of treating EMDE infrastructure as an asset class and the associated implications to investors, regulators, project sponsors, and other stakeholders. Specific products include project asset-based securities, puttable bonds, programmatic risk guarantees, and securitized infrastructure loan products. The chapter explores potential investor targets for the emerging market infrastructure sector and lays out proposed structures for alternative financing products that engage commercial and multilateral development banks to mobilize additional finance.
This article highlights India's growing economic importance on the world stage and focuses on the recent and future course of the Indian economy. India's remarkable economic growth in recent years has made it one of the fastest growing economies in the world. In 2011, India ranked as the 11th largest economy in the world in nominal US dollars. With respect to purchasing power parity, India has the fourth largest economy in the world after the United States, China, and Japan. The immense optimism surrounding the Indian economy is underscored in the 2010 Economic Survey, which alludes to the strong possibility of double-digit growth in the coming decade. While India's economic growth has been impressive, rapid growth has been accompanied by a slow decline in poverty, widening regional disparities, and continuing sociopolitical instability. Large sections of the population continue to be deprived of basic health and education.
This chapter reviews Islamic finance’s North Africa’s historical roots and connections to the region’s development. It outlines an organizational blueprint for the industry that would allow it to develop in compliance with both general financial regulation and the principles of Islamic finance. As financial intermediation striving to be consistent with the faith of the vast majority of North Africa’s population, Islamic finance could contribute to financial deepening and inclusion. It needs to overcome competitiveness challenges due to compliance costs not borne by conventional finance. After an overview of the various connections of North Africa with Islamic finance and its potential contribution to development, the chapter suggests an organizational framework that could enhance the industry’s competitiveness and reduce regulatory compliance challenges. It concludes with Ibn Khaldun’s message of letting markets determine an industry’s fate within a clear and transparent institutional framework.
Prabal Roy Chowdhury
The microfinance sector in Indian has followed two different models: the microfinance institute (MFI) model and the self-help-group (SHG) linkage model. The MFIs mostly follow the Grameen model, with some variations, whereas the SHG-linkage model has some interesting features typically not found in other microfinance institutions. This article focuses not only on the SHG-linkage program but also on its role as a conduit for channeling credit and on the role played by NGOs in this process. It provides a brief overview of the genesis and spread of the SHG-linkage program, and examines the social impact of microfinance, especially in the Indian (and Bangladeshi) context. It builds a simple formal model capable of comparing the efficiency implications of the SHG-linkage approach vis-a-vis the Grameen. Finally, the article concludes with some suggestions for future research.
This article explores the role of the financial sector for economic growth, the causes and consequences of financial fragility, and the politics behind financial deepening and fragility. In doing so, it identifies the critical role of the financial sector within capitalist economies, a role with bright and dark sides. Specifically, it surveys the large theoretical and empirical literature that links a sound financial system to the process of economic development. It discusses the theoretical and empirical literature on bank fragility and banking crises and surveys the literature on the political economy of financial deepening. Importantly, it relates these three strands of the literature to each other and to the current crisis.