An Institutional Perspective to Finance and Development as an Alternative to Financial Liberalisation

This paper argues that financial liberalisation as practiced recently worldwide engenders widespread financial crises precisely because of the weak foundations of its theoretical framework and poor empirical performance. Financial liberalisation is critically evaluated on both theoretical and empirical grounds, which suggests that an alternative is vitally necessary. Based on institutional theory,a new approach is proposed the focus of which is on ways to affect financial and banking transformation that is more consistent with economic development. We demonstrate how this theoretical approach can be applied in the real world, and indeed how the theoretical propositions we put forward in this contribution, very different from those of financial liberalisation, produce a more developmentally oriented set of policies for the countries that are prepared to pursue them.     

Financial crisis in Southeast Asia: dispelling illusion the Minskyan way

This paper extends Minsky's financial instability hypothesisto the case of the open, ‘liberalised’, economy,making it possible to put forward a specifically Minskyan accountof the road to the financial crisis in Southeast Asia (1997/1998).The analysis suggests that the threats to growth and employmentemanating from the financial sector which Minsky identifiedin the closed economy setting are much intensified in open,liberalised, developing economies. Financial liberalisationis an important key factor in this process. Rival explanationsof the crisis are examined and rejected in favour of the extendedMinskyan explanation. The policy implications are derived anddiscussed.     

A note on “Rethinking liquidity creation: Banks,shadow banks and the elasticity of finance”

Abstract

In their recent article, Yeva Nersisyan and Flavia Dantas proposed to amend the endogenous money theory to account for the activity of nonbank financial institutions (NBFIs) and of foreign banks. It is indeed argued that the traditional post Keynesian and circuitist approaches are overly narrow because they rely on a limited definition of money. Consequently, these approaches are focused on commercial banks (that create money) and regard other financial institutions as mere intermediaries that intermediate funds from surplus units (savers) toward deficit units (borrowers). Because it treats NBFIs as mere intermediaries, the authors argue that the traditional post Keynesian framework is no longer relevant for the analysis of the contemporary financial system. We believe that this critique is not justified. Using balance sheet analysis, we show that the destabilizing role of NBFIs can be taken into account within the traditional post-Keynesian framework.     

Expectations, the business cycle and the Mexican peso crisis

The 1994–95 ‘peso’ crisis did not displaycharacteristics which allow it to be easily captured by traditionalcrisis models. Models based on Minsky's financial fragilityhypothesis offer more persuasive accounts but have been supportedby relatively little direct empirical evidence. This paper providessuch evidence, with particular attention being paid to the roleof domestic financial liberalisation in the process. Minsky'shypotheses about the evolution of expectations over the businesscycle are tracked using business survey data. In addition, crisisindicators are constructed, reflecting the changing vulnerabilityof the economy to shocks. The findings support a Minskyian interpretationof the crisis.     

Mobile money adoption and households’ vulnerability to shocks: Evidence from Togo

ABSTRACT

We investigate the determinants of mobile money adoption process and whether its use helps households in Togo to be resilient to predictable and unpredictable life events. Using ordered logit and sequential logit models, our results show that in the adoption process, households benefit from weak ties of social groups such as religious group and informal saving group for the adoption of mobile money. We equally find that being client of banks or microfinance institutions act as powerful channels from one step to another in the process. Besides, our findings reveal that households whoever use mobile money seem to be more resilient to climatic shocks such as drought, irregular rain, soil degradation, erosion and fertility reduction and to shock that affect households’ assets (non-climatic: high prices of agricultural inputs). However, the picture is more contrasted when the individuals are classified by disadvantaged groups such as rural people, women, less educated and people with low incomes.     

Rethinking liquidity creation: Banks,shadow banks and the elasticity of finance

In this article, the authors use the concept of the hierarchy of money found in the works of Minsky (2008 Minsky, H. [1986]2008. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press. [Google Scholar][1986]), Foley (1987 Foley, D. 1987. “Money in Economic Activity.” In The New Palgrave: Money, edited by J. Eatwell, M. Milgate, and P. Newman, 519–525. New York, NY: W.W. Norton.[Crossref] , [Google Scholar]), Wray (1990 Wray, L. R. 1990. Money and Credit in Capitalist Economies: The Endogenous Money Approach. Aldershot, UK: Edward Elgar. [Google Scholar]), and Bell (2001 Bell, S. 2001. “The Role of the State and the Hierarchy of Money.” Cambridge Journal of Economics 25 (2):149–63.[Crossref], [Web of Science ®] , [Google Scholar]) to analyze the process of liquidity creation in modern capitalist economies where shadow banks play an active role. They abandon the narrow focus on banks as the creators of money as well as the idea that nonbank financial institutions are mere intermediaries between savers and borrowers. Instead, the authors demonstrate that, similar to banks, nonbank financial institutions and foreign banks (through their cross-border activities) create liquidity endogenously by leveraging over the liabilities of entities hierarchically above them. The authors further elucidate Kregel’s concept of “fictitious” liquidity in the context of the hierarchy of financial liabilities, distinguishing it from “true” liquidity. By bringing shadow banks and the euro-currency markets into to the pyramid of financial liabilities, they develop a more complete framework of liquidity creation in modern capitalist economies. Their “extended” pyramid is useful for analyzing not only the fragility that may arise from the interactions between firms, households and banks, but also that which may originate through the interactions between banks, shadow banks and foreign banks.     

Financial inclusion: measurement,spatial effects and influencing factors

Using the index of financial inclusion and the World Bank Global Findex database, this study measures the level of financial inclusion across countries. The results reveal a geographical spatial aggregation distribution in which developed European and North American countries enjoy higher levels of financial inclusion than the less developed countries of Africa and most of Asia. Accordingly, our spatial analysis proves our hypothesis and reveals dependence and aggregation effects among countries. Then, we employ spatial econometric research to identify those factors significantly associated with financial inclusion. The results show that an individual’s income, education and use of communications equipment are important factors that explain the level of financial inclusion, while financial depth and banking health status are the main determinants. Building an inclusive financial system is an important means for most countries to achieve the Millennium Development Goals.     

我国金融结构与二元经济关系分析——基于协整检验、脉冲响应函数和方差分解的研究

本文构建了我国金融结构与二元经济的协整方程,并通过格兰杰因果关系检验、脉冲响应函数及方差分解来考察它们之间的因果关系及动态变化特征.结果表明:我国金融结构与二元经济存在长期稳定的正相关关系;金融结构是二元经济的收入和消费因子的Granger原因;二元经济的收入和消费因子对金融结构的脉冲响应是正向响应,而产出因子是负向响应;金融结构受自身影响最大,二元经济在滞后3期受金融结构的影响比较显著.最后根据研究结论提出促进金融结构完善和二元经济转换的建议.     

Does financial inclusion empower women in Africa?

This paper examines the effect of financial inclusion on women's empowerment. We contribute to the growing interest in financial inclusion effectiveness literature by conducting an empirical analysis of 42 African countries to examine the role of financial inclusion in empowering women. We also examine and compare the effectiveness of the three dimensions of financial inclusion viz. usage, access, and quality, and the first most influential indicators, based on their PCA score, of these dimensions. Our findings suggest that financial inclusion has a significantly positive effect on women's empowerment-measured by females' human development index. Examining the relative importance of financial inclusion dimensions, we find access to financial services has a higher effect on women's empowerment. These results are robust to alternative measures of women's empowerment and financial inclusion, and alternative estimation procedures. We also find that the effect of financial inclusion on women's empowerment is higher in low and lower-middle-income countries compared with upper-middle-income countries in the region. This study provides evidence of one of the channels through which financial inclusion contributes to reducing gender inequality, and thereby enhancing economic development.     

The Confidence Trap: Japan’s Past Bubble and China’s Recent Bubble

This paper explores the origin of China’s recent credit and asset boom by comparing it with the Japanese bubble economy in the late 1980s by focusing on the asymmetric pattern of financial liberalisation under high savings. It argues that (1) both cases show a ‘confidence trap’ in that policy-makers of the government shared a complacent mindset that they can achieve the optimal mix of market liberalisation and repression, while believing that their political economic system is fundamentally different from others; (2) Such complacent confidence precipitated the supply-side driven financial reforms, in which both governments tried to diversify the credit channels of bank deposits by promoting non-bank financial intermediaries; (3) Exogenous shocks played a pivotal role in enforcing the government to take aggressive monetary easing and fiscal expansionary measures. But the Chinese case is different from the Japanese case in that (1) local politics has promoted a ‘too secure to fail’ situation in which rent-seeking activities are difficult to be detected, thus aggravating the hidden systemic risks; (2) China needs to liberalise its capital account with the more strengthened macroprudential regulatory governance, as the global foreign exchange markets have drastically changed from the period of the 1980s.     

Averting crisis? Assessing measures to manage financial integration in emerging economies

The Asian crisis provides heterodox economists with the opportunityto investigate counterfactually whether the financial policiesthey have proposed would have averted the crisis. The paperargues that neo-liberal financial integration introduces distinctrisks to emerging economies—currency, flight, fragility,contagion and sovereignty risks. The paper presents the financialpolicies endorsed by the heterodoxy—transactions taxes,trip wires and/or speed bumps, convertibility restrictions,the Chilean model and a publicly managed mutual fund. The paperconsiders whether these policies mitigate risks, and whetherthey could have prevented the Asian crisis (and the transmissionthereof). The paper concludes with policies to avert futurecrises.     

The political economy of the Ecuadorian financial crisis

This paper takes the unusual step of exploring economic hypothesesthrough interviews with key economic agents. It focuses on thecauses of Ecuador's 1999 banking collapse, within an eclecticframework with Minskian elements. Broad support is found for‘endogenous’ explanations of financial crises andlittle backing for explanations such as accidents or policymistakes. Interviewees argued that after the stabilisation programmeof 1992, agents became euphoric and accumulated debt to financeimprudent levels of expansion; that incentives for moral hazardled to financial corruption and excessive risk taking; and thatweak regulation after financial liberalisation encouraged financialfragility.     

Financial liberalization and the stationarity of money multiplier

Abstract

In countries without an explicit inflation targeting mechanism, a stable relationship between the monetary base and the money supply allows policymakers to implement changes in monetary policy with a reasonable degree of certainty about the impact on the money supply. The relationship can, however, be influenced by major structural shifts such as financial sector reforms. The present study finds that when structural change bought about by financial liberalisation is ignored, the unit root hypothesis is spuriously accepted. However, once this break is incorporated into the analysis, the multiplier exhibits no presence of a stochastic trend.