Development finance debates dogmas and new directions (routledge textbooks in development economics)

Development Finance This book examines the subject of Development Finance, or more specifically how financial systems can help or hinder the process of human development As an expert in this field, Stephen Spratt reviews the components of the domestic and international financial systems, and considers reform options objectively against the central goal of human development The result is a combination of orthodox and more innovative approaches, which provides a thorough grounding in development finance theory and practice in the twenty-first century Topics covered in the book include: • • • • The Millennium Development Goals Financial crises and international capital flows Designing and regulating the domestic financial system Finance and the private sector Focusing on the roles of the World Bank and the IMF, and with a host of case studies and real world examples from Asia, Africa and Latin America as well as the ‘transition’ economies of Eastern Europe, the author examines developing countries’ engagement with the international financial system and its influence on the process of human development, both positive and negative Spratt argues that the success or failure of financial systems and reforms can be judged against a simple benchmark: they positively contribute to poverty reduction and human development, or not? He goes on to say that reforms that pass this test are to be welcomed whilst those that not should be discarded, regardless of the ideological package in which they are wrapped Packed with helpful tables and figures, this book will be essential reading for students taking courses on: international development; development finance; development economics; financial theory and practice Stephen Spratt is a director of the new economics foundation, a UK-based think tank Previously he lectured in development finance at the University of Reading, has worked in the City of London’s financial markets and at the Institute of Development Studies at the University of Sussex Routledge Advanced Texts in Economics and Finance Financial Econometrics Peijie Wang Macroeconomics for Developing Countries, Second edition Raghbendra Jha Advanced Mathematical Economics Rakesh Vohra Advanced Econometric Theory John S Chipman Understanding Macroeconomic Theory John M Barron, Bradley T Ewing and Gerald J Lynch Regional Economics Roberta Capello Mathematical Finance Core theory, problems and statistical algorithms Nikolai Dokuchaev Applied Health Economics Andrew M Jones, Nigel Rice, Teresa Bago d’Uva and Silvia Balia Information Economics Urs Birchler and Monika Bütler Financial Econometrics, Second edition Peijie Wang Development Finance Debates, dogmas and new directions Stephen Spratt Development Finance Debates, dogmas and new directions Stephen Spratt First published 2009 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2008 “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2009 Stephen Spratt All rights reserved No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Spratt, Stephen Development finance : debates, dogmas and new directions / Stephen Spratt p cm Includes bibliographical references and index Finance–Developing countries Economic development– Finance International finance I Title HG195.S68 2008 332′.042091724–dc22 2008009767 ISBN 0-203-89144-9 Master e-book ISBN ISBN10: 0–415–42318–X (hbk) ISBN10: 0–415–42317–1 (pbk) ISBN10: 0–203–89144–9 (ebk) ISBN13: 978–0–415–42318–2 (hbk) ISBN13: 978–0–415–42317–5 (pbk) ISBN13: 978–0–203–89144–5 (ebk) Contents List of figures List of tables List of boxes An introduction to the financial system in theory and in practice vii x xii Finance, poverty, development and growth 25 Financial repression, liberalisation and growth 56 The domestic financial system: an overview 89 Reforming the domestic financial system: options and issues 125 The external financial system (I): characteristics and trends 170 The external financial system (II): debt and financial crises 204 The international financial architecture: evolution, key features and proposed reforms 255 Development finance and the private sector: driving the real economy 297 10 Finance for development: what we know? 336 vi Contents Notes References Index 374 385 403 Figures 2.1 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3 5.4 5.5 5.6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 Regional GDP growth rates, 1960–2006 Real interest rates in Turkey, 1973–1983 Total private capital flows to developing and emerging economies, 1993–2006 Portfolio flows and bank lending, 1993–2006 GDP growth rates: high, middle and low-income countries, 1960–2006 Regional privatisations, 1988–2003 Pattern of government expenditure on selected categories, 1990–2002 Central government fiscal balances, 1998–2006 Annual inflation rates, 1998–2006 Annual percentage changes in GDP per capita, 1990–2005 Regional per capita GDP rates, 1990 vs 2005 Regional tax revenues as percentage of GDP, 1990–1995 vs 1996–2002 Regional government expenditure as percentage of GDP, 1990–1995 vs 1996–2002 Developing world inflation vs growth, 1985–2005 Regional growth rates, 1985–2005 Comparative stringency of banking supervision Value of securities traded abroad/value trade domestically Net ODA to developing countries, 1980–2005 Composition of ODA to all developing countries, 1990–2005 Composition of ODA to least developed countries, 1990–2005 Proportion of regional populations living on less than US$1 per day, 1990 vs 2002 vs 2004 Sub-Saharan Africa: under-5 mortality rates, 1990–2005 Regional progress on reversing deforestation Estimated global ODA required to meet MDGs, 2002–2015 Proportion of ‘tied’ ODA, 2006 49 65 70 70 77 100 115 116 117 123 123 138 139 149 150 156 160 171 174 175 179 180 181 181 186 viii 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 7.16 8.1 8.2 8.3 8.4 9.1 9.2 Figures Map of main proposals on innovative sources of financing Net private capital flows to developing countries, 1993–2006 Net private capital flows as percentage of developed countries’ GDP, 1993–2006 Net private capital flows to developing regions, 1993–2006 Net private flows to Asia (ex China and India) vs flows to China and India, 1999–2006 Composition of private capital flows to developing countries, 1993–2004 Cumulative capital inflows to developing regions, 1993–2004 Regional reserve accumulation, 1999–2006 Proportion of sovereign debt denominated in US dollars, 1980–2005 FDI vs other capital flows, 1993–2006 Impact of different forms of capital inflow on domestic investment FDI’s share of total capital inflows relative to credit rating Distribution of FDI inflows in sub-Saharan Africa, 1997–2002 Proportion of inward FDI to different sectors, 1990 vs 2002 The changing composition of capital inflows, 1978–1995 Proportion of foreign debt comprised of short-term loans, 1988–1997 Proportion of international bank loans of less than one-year maturity, June 1990 to September 2006 Foreign bank ownership in developing regions, 1995–2002 Net international debt issuance by developing countries, 1993–2007 Net equity flows to developing countries, 2000–2006 Selected major financial crises, 1400–2000 Total fiscal costs of banking crises, 1980–2000 External debt to GNI, 1980–2005 Multilateral debt as percentage of total debt, 1980–2005 Selected real agricultural commodity prices, 1970–2005 Hard and soft capital resources of the multilateral development banks, 1995 Cumulative regional loan approvals to 1995 Absolute poverty, 1981 vs 1987 IMF resources vs members’ GDP, 1944–2003 Availability of credit information: high-, middle- and low-income countries, 2006 Private sector credit (2005) vs credit bureau coverage (2006) 188 192 193 193 194 195 195 196 201 205 209 210 213 214 214 215 217 219 221 223 224 228 247 247 252 272 273 282 294 308 313 Figures ix 9.3 9.4 9.5 9.6 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 Confidence in property rights vs FDI R&D expenditure as percentage of GDP, 1998–2000 Proportion of total employment by SMEs in selected developed economies, 2001 GDP per capita vs SME manufacturing labour force share Regional domestic savings rates, 1989–2005 Sub-Saharan Africa: working-age population vs domestic savings rate Savings rates by income level, 1970–2004 Historical savings rates in US and UK vs Malaysia and Korea, 1960–2005 Sources of investment funds for small and large firms State ownership in the banking sector: global ‘Top 10’ Inflation, credit and growth in Colombia, 1980–2006 Percentage of managers lacking confidence in courts to uphold property rights Gross fixed capital formation as a multiple of FDI Average number of days needed to enforce a contract, 2006 Regional poverty levels 315 321 322 324 340 342 344 345 346 351 352 360 366 368 372 404 Index flows 71, 193; contagion 231; financial sector 259; foreign ownership 92, 93; monitoring 237; reports after 284, 290 asset-based lending 308–9, 310, 312, 316 asset management companies 3, 7, 161–2 assets 12, 53–4, 57, 227 asymmetric information 22–3, 86, 90, 104, 109, 151, 152, 199–200, 349, 356 Atiyas, I 69 Attlee, Clement 59 Australia: bank regulation 318; liberalisation 79; new business registration 369; socially responsible investment 334; stock markets 94 Bagehot, Walter 2, 103 balance of payments 230, 258, 262 Bangladesh 96 Bank for International Settlements (BIS) 256, 288, 295, 358 bank lending 195, 215–20, 242, 340; composition of capital flows 195, 205, 209, 209, 214; hierarchy of capital flows 202, 204, 223; liberalisation 70–1, 70; trade finance 301; volatility 194, 199, 202, 234–5; see also banks Bank of England 9, 117 banking crises 72, 223, 227–9, 235 Banking School 18 bankruptcies 16, 310, 316 banks 3, 7, 91, 92, 103–4; asymmetric information 22–3; bank-based systems 89, 90, 90; capital controls 239; competition 353–4; financial repression 60, 61, 63; foreign ownership 92–3, 119, 217–20, 317, 353, 354; India 31; liberalisation 80, 84–5; privatisation 60–3, 79; reform of banking sector 150–9; regulation 119, 120–1, 317–18, 357–8; risk management 10; Schumpeter 51; state ownership 60–2, 80, 151, 158, 229, 318–19, 350; US subprime lending crisis 348; see also bank lending; banking crises Barr, N 166 barriers to entry 60, 61, 157, 363, 366, 369 Barth, J R 156, 157, 158 Basel Capital Accord (1988) 153–4, 236–7, 295 Basel II 154–5, 357 Bayoumi, T 66 behavioural finance 23–4, 57 Benin 368 Berg, A 133 Berger, A N 218, 311, 312, 314, 316–17 Bermuda 326 Biggs, T 320, 323, 324–5 Birch, D L 320 Bird, G 129 Bird, R M 142, 146 BIS see Bank for International Settlements Bodnar, G M 211 Bolivia 53, 102 bond markets 4–5, 91, 107–8, 158, 161, 222 bonds 3–4, 99, 107–8, 159, 188, 354; Brady Plan 246; monetary policy 129; portfolio flows 222; World Bank 264, 265 Bordo, M D 74 borrowing 16, 151, 312–19; asymmetric information 22, 152; Basel Capital Accord 155; EMEPG Report 290; IMF 285–6, 288; microfinance 96; moral hazard 283; property rights 355; savings 343, 344; Thailand 74–5; transactions lending 302–12, 313; US subprime lending crisis 347–8; World Bank 263–4, 265; see also bank lending Bosworth, B P 208–9 Botswana 368 Boyd, J 104 Bradley, M 297–8 Brady Plan 246 Brazil: factoring 310; financial crisis 234; liberalisation 79; SMEs 324; tariffs 277 Bretton Woods institutions 16, 19, 118, 127, 255, 256–79; fiscal policy 135; liberalisation 63; Poverty Reduction Strategy Papers 248; structural adjustment 173; see also International Monetary Fund; World Bank Brown, Gordon 187–8 bubbles 21, 199, 224, 309, 318, 358; dotcom 57, 222–3, 354; Japan 339; Thailand 75, 83, 199 building societies Buira, A 293–4 Bulgaria 315 Burundi 315 C&S see codes and standards CAL see capital account liberalisation Calderon, C 53 Cameroon 315, 324, 368, 368 Index Campbell, J Y 66 Canada 276, 277, 334, 353 capital: banks 119, 120, 153, 154–5, 156, 157; Harrod-Domar growth model 41–2, 46; Heckscher-Olin model 329; neo-classical growth model 46; surplus 3, 4, 56; trade finance 300, 301 capital account liberalisation (CAL) 72–6, 78–80, 81, 82–4, 88, 235–6, 289 capital accumulation 36, 52, 105 capital adequacy ratio 153, 154, 155, 239–40 capital controls 16, 19, 63, 88, 239–42; EMEPG Report 289, 291; financial crises 75; growth 75–6; IMF 258 capital flight 60, 63, 83 capital flows 19, 59, 170, 171, 191–203, 234–5, 296; contagion 232; debt 244; EMEPG Report 289; financial repression 60, 61; hierarchy of 202, 204, 223; high interest rates 352; international financial architecture 291; Latin America 17; liberalisation 64, 69–71, 73, 74, 80, 82, 83–4, 88; risk assessment 259; savings 340; see also foreign direct investment capital markets 3, 4–5, 6, 91, 159–62, 291; accounting standards 306; Efficient Market Hypothesis 11; financial sector development 53; inequality and growth 35; market-based systems 89; monetary policy 130; neo-liberalism 20 capitalism 51, 366 Caprio, G 59, 63, 85–6, 87 carbon tax 189 Cardoso, J 241 Caribbean: credit 313; deforestation 181; foreign direct investment 325–6; GDP per capita 123; growth rate 49; poverty 179, 282, 372; privatisation 101; public expenditure 113; savings rate 340; short-term debt 217; taxes 113 Cayman Islands 326 CCL see Contingent Credit Line Central Asia: credit 313; debt denomination 201, 201; deforestation 181; domestic investment 366; equity flows 223; foreign bank ownership 219, 220; poverty 179, 179, 371, 372; savings rate 340 central banks 3, 8–9, 91–2, 237; inflation targeting 128, 129; monetary policy 117, 126–7, 128–9 405 Central Europe: banking sector 62; capital flows 192, 193; Doha Round 278; fiscal balance 116; foreign bank ownership 93; foreign direct investment 194; foreign exchange reserves 196; growth rate 150; inflation 118; privatisation 101 ‘centre-periphery’ paradigm 17 CFF see Compensatory Financing Facility Chapple, S 66 Chari, A 69 Chavez, Hugo 102 Chen, S 29 Chicago School of Economics 19 child mortality 177, 180 Chile: capital controls 240–1; liberalisation 78, 79; pension reform 164–5, 166, 343; savings rate 343; stock markets 94 China: capital controls 241–2; capital flows 194, 194; contract enforcement 368; credit 314, 356–7; Doha Round 278; equity flows 222; factoring 310; ‘flying geese paradigm’ 328; growth 50, 76, 149, 180, 372–3; labour outsourcing 328; ‘Multilateral Consultation Process’ 292; poverty reduction 179, 373; restrictions on financial institutions 353; stock market 106; tariffs 277; trade credit 311; trade dispute with the US 196–8 Chwieroth, J 81 civil law 98, 103 classical economics 40 clearing services climate 98 CLS see Continuous-Linked-Settlement Bank Coady, D P 135, 137 codes and standards (C&S) 260, 261–2, 289, 290, 291, 293, 295 Cold War 43–5, 170, 274 collateral 308–9, 312, 349–50, 355 Collins, S M 208–9 Colombia 79, 240, 352–3 colonialism 98, 305 commercial financial institutions commodity prices 252 ‘common creditor’ argument 233 common law 98, 103 communism 43, 270 comparative advantage 40, 48, 73, 328–9 406 Index Compensatory Financing Facility (CFF) 237 competition 78, 110, 348, 353–5; barriers to 369; investment climate 366, 367; regulation 120, 362–3; SME sector 320 conditionality 186, 248, 251, 290, 295 consumption 10, 337 contagion 10, 227, 231–5 Contingent Credit Line (CCL) 238 Continuous-Linked-Settlement (CLS) Bank contract enforcement 349–50, 359, 368, 368 contractual savings institutions 3, 7, 99–100 cooperation 173, 257, 290, 373 cooperative banks corporate governance 105, 355–6 corporate social responsibility (CSR) 333–4 corporation tax 111, 145, 367 Correa, Rafael 102 corruption 90, 103, 157, 287, 298 Côte d’Ivoire 105, 368 Council on Foreign Relations (CFR) report 283–4, 286 credibility 128, 133, 358, 370 credit 20, 35, 78, 312, 348; allocation of 3, 4, 58, 85; Asia 107; asymmetric information 349; Basel Capital Accord 155; China 356–7; Colombia 352, 352; credit bureaus 313–14, 313, 349–50, 356; creditor rights 355; directed 86, 87, 88; factoring 309–10; financial repression 60, 61, 63; foreign-owned institutions 317; monetary policy 130; rationing 152; regulatory environment 317; risk 10; savings 344; trade credit 310–11, 312; see also borrowing credit scoring 307–8, 310, 312, 313 credit unions crime 359, 360 CSR see corporate social responsibility currency boards 131–2 currency crises 72, 92, 223, 229–31, 232, 235, 243 Currency School 18 currency (Tobin) tax 189–91 currency union 133 Czech Republic 316 Davidson, P 21 De Gregorio, J 241 debt 16, 45, 132–3, 243–53, 292, 351; adverse selection 22; Argentina 132; Asia 107; banking sector 158; ‘burdensharing’ 293; capital controls 239, 240; criticisms of IMF/World Bank 281–2; currency crises 92; ‘debt-cycle’ hypothesis 199, 243; denomination 200–2, 222, 236; EMEPG Report 289; globalisation 161; HIPC initiative 246–51, 295; industry variations 297–8; Meltzer Report 287; portfolio flows 220–3; short-term loans 215–20; sustainability 243, 244, 250, 252–4 debt crisis 244–6, 259, 283 debt finance 3, 151, 298, 311; see also borrowing; credit; debt debt relief 174–5, 177, 247–9, 273 defence 114–15, 115 deflation 16, 339 deforestation 180, 181, 362 Demetriades, P 67 demographics 163, 341, 343 Department for International Development (DfID) 53–4 deposit insurance 9, 99, 157, 357 deregulation 19, 20, 66, 228, 280 derivatives 6, 19, 211, 346 devaluation 232, 243 development 173, 177–8, 187, 292 development aid see official development assistance ‘developmental state’ model 86, 125, 338, 370 Devereux, M 67 DfID see Department for International Development Diaz-Alejandro, Carlos 71 Dieci, R 190 diseases 177, 188 ‘distress selling’ 16 diversification 104, 105, 155, 162, 211, 357 Dollar, D 38 dotcom boom 20, 21, 57, 222–3, 354 East Asia: bank lending 218; Cold War 44–5; credit 313, 314; currency pegs 198; debt denomination 201, 201; deforestation 181; ‘developmental state’ model 125, 370; domestic investment 366; equity flows 222, 223; financial repression 86–7; foreign exchange reserves 198, 235, 293; foreign technology 321; GDP per Index capita 123, 124; government intervention 122, 350; growth rate 49, 77; human capital development 331, 364; inequality 33; ‘infant industries’ 369, 371; labour outsourcing 328; liberalisation 60; poverty 179, 179, 372, 372; privatisation 101; R&D expenditure 321; savings rate 340, 340, 341; short-term debt 215; stock markets 160 Eastern Europe: bank lending 218; banking sector 62; capital flows 192, 193; Doha Round 278; fiscal balance 116, 116; foreign bank ownership 220; foreign direct investment 194; foreign exchange reserves 196; growth rate 150; inflation 117, 118; poverty 179; privatisation 100, 100, 101; R&D expenditure 321; SMEs 323 Eatwell, J 56, 77 ECB see European Central Bank Economic Commission for Latin America (ECLAC) 16–17 economic growth see growth economies of scale 322, 323, 326, 327, 329–30 Ecuador 69, 97, 102 Edison, H 74 education 114, 115, 139, 364, 367–8; inequality 36, 37, 39; Millennium Development Goals 176, 180 Edwards, S 74, 241 EEC see European Economic Community efficiency 12–13, 135; allocative 11; Kaldor-Hicks 34; Pareto 34; taxes 143–5, 147 Efficient Market Hypothesis (EMH) 11–14, 20, 21, 24, 56–7, 224 Egypt 79, 183 Eichengreen, B 72, 73, 74, 75–6, 221, 232, 234 emergency aid 174–5 Emerging Market Eminent Persons Group (EMEPG) 288–91, 292 EMH see Efficient Market Hypothesis employment 14, 19, 337, 364; investment climate 365, 367; SMEs 320, 322, 322; see also labour endogenous growth models 47–9 enhanced structural adjustment programmes (ESAPs) 266 entrepreneurship 319, 320–2 environmental sustainability 177, 180 407 EPZs see export processing zones equity (fairness) issues 135, 145–6, 147 equity finance 3, 7, 108, 298, 354; derivatives market 6; monetary policy 129; portfolio flows 222–3; shareholder rights 356 equity markets 5, 22, 107, 151, 161, 168, 300 ergodic systems 21 ESAPs see enhanced structural adjustment programmes Escudé, G 218 Ethiopia 135–7, 143, 172, 360–2 EU see European Union Europe: credit 313; debt denomination 201; debt issuance 220, 221; deforestation 181; domestic investment 366; equity flows 223; foreign bank ownership 219, 220; ‘Multilateral Consultation Process’ 292; poverty 179, 371, 372; savings rate 340; shortterm debt 215, 215, 217; socially responsible investment 334; see also Central Europe; Eastern Europe; European Union European Central Bank (ECB) European Economic Community (EEC) 256 European Union (EU) 127, 133, 372; competition regulation 363; debt sustainability 252, 253; Doha Round 278; IMF 263; official development assistance 172; private insurers 301; tariffs 276, 276, 277, 278 exchange rates 9, 116, 118, 127–8, 130–1, 351–2; capital controls 240; China 197–8; currency crises 229–31, 235; EMEPG Report 289; fixed 19, 59, 118, 127–8, 130–1, 229–30, 256–7, 258–9, 269; floating 12, 19, 118, 127, 130, 132–3, 235–6; hedging 211; IMF 258–9, 269; risk 92; Thailand 74 export processing zones (EPZs) 145, 205–7, 333 exports 17, 20, 211, 321–2; debt/export ratio 249, 250; subsidies 277, 278, 279; tariffs 275, 276; taxes 135–6; trade credit 310–11 Eyzaguirre, N 241 factoring 309–10, 312, 316 Fan, J 298 FDI see foreign direct investment 408 Index Federal Deposit Insurance Corporation (FDIC) Fernández-Arias, E 209 Ffrench-Davis, R 199 finance companies financial crises 14, 15, 24, 54, 223–39, 358; banking crises 72, 223, 227–9, 235; capital controls 75; capital flows 83, 191–2, 204, 340; codes and standards 261–2; contagion 231–5; currency crises 72, 92, 223, 229–31, 232, 235, 243; EMEPG Report 289, 290; financial repression 63; IMF 259–60; international financial architecture 294, 295–6; liberalisation 71–2, 110, 349; prevention and resolution 235–9, 241; US subprime lending crisis 346, 347–8; see also Asian financial crisis financial repression 58–64, 79, 86–7, 125; see also government intervention; regulation Financial Sector Assessment Program (FSAP) 259, 261 financial sector development (FSD) 89, 297, 335, 337, 345–51, 367, 373; banking 150; basics of 351–9; GDP per capita relationship 93–4, 93; growth 49–54, 56, 69, 97, 103; inequality 37, 38, 39; investment quality 68; McKinnon-Shaw hypothesis 58; poverty reduction 53–4; savings relationship 337 Financial Stability Forum (FSF) 260, 261, 290, 292, 295, 304–5 financial statement lending 304–7, 312 financial system 89–124; bank-based vs market-based systems 89–90, 97, 99, 103; developed vs developing countries 91–7; functions 2–4, 10–11, 125; key features 4–9 ‘financing gap’ 42–3, 45 Finland 353 fiscal balances 116, 139–41, 140, 149, 235 fiscal deficits 116, 129, 132, 139, 339, 352 fiscal policy 111–15, 116, 133–41, 168, 242, 267, 342; see also tax Fisher, Irving 15–16, 23 Fleming, Marcus 127 ‘flying geese paradigm’ 328 foreign direct investment (FDI) 70–1, 88, 199, 204–15, 234, 325–6, 331; bargaining power 373; benefits of 202, 204–5, 208–9, 212, 213, 220, 242, 253–4; China 372; composition of capital flows 194–5, 195, 205, 209, 214; domestic investment comparison 365–6, 366; hierarchy of capital flows 202, 203, 204, 223; negative impacts of 209–11, 213–14; property rights enforcement 315–16; ‘tax competition’ 364, 367, 373; tax incentives 145; ‘Washington Consensus’ 280 foreign exchange (FX) 2, 127, 131, 257; derivatives market 6, 211; reserves 196, 198, 230, 235, 293; Tobin Tax 189–90 France 183, 264, 305 fraud 152 free trade 20, 40, 73, 274, 279 Friedman, Milton 12, 19, 32, 57, 189 friendly societies Fry, M 66 FSAP see Financial Sector Assessment Program FSD see financial sector development FSF see Financial Stability Forum FX see foreign exchange G7 countries 77, 160, 289–90, 292 G8 countries 180–1, 182, 188, 249 GAAP see Generally Accepted Accounting Principles Galindo, A 69 Gallego, F 240, 241, 343 Galor, O 35 GATT see General Agreement on Tariffs and Trade GDP see gross domestic product Gebhardt, G 211 Gelb, A 67 gender equality 176 General Agreement on Tariffs and Trade (GATT) 256, 274–5 Generally Accepted Accounting Principles (GAAP) 304, 305–6 Geneva Report (1999) 284, 286 geography 98 Germany: accounting standards 305; bank-based system 89–90, 97; divestiture of state assets 350–1; liberalisation 60; official development assistance 183; SMEs 322, 323, 324; state ownership of banks 319, 319, 351; stock markets 94 Gerschenkron, Alexander 103–4 Ghana 266, 267–8, 320 Glass-Steagall Act 317–18 globalisation 161 Index GNP see gross national product Goldsmith, Raymond 52 good governance 183, 184 Gottschalk, R 71, 234 government intervention 3–4, 14, 24, 59, 86, 88, 108–11, 122; banking crises 227; ‘developmental state’ model 370–1; financial repression 58, 60; Japan 338; market failure 87, 350; neoliberal opposition to 19, 20; welfareenhancing 83, 110; see also regulation government size 37, 38 Grameen Bank 96 grants 287 Great Depression 14, 15–16, 58–9, 76, 256, 264 Greene, J 67 Greenspan, Alan 57 Gregorio, J de 69 Griffith-Jones, S 71, 234, 291, 295 Grilli, V 73 gross domestic product (GDP): banking crises 228; capital flows 192; elasticity of tax yield 142; FDI relationship 325–6; financial sector development 53, 93–4, 93; Ghana 268; growth rate volatility 77, 122–3; Harrod-Domar growth model 41; money/GDP ratio 67, 68; per capita incomes 123–4; privatisation 100, 101; public expenditure 113, 114, 115; regional growth rates 49; revenue/GDP ratio 252; savings rate 339; SME sector 324 gross national product (GNP) 171–2 Grossman, G 48 growth 26–54, 104, 269, 337; capital account liberalisation 73–4, 75–6; capital flows 199–203; China 372–3; Colombia 352–3, 352; ‘debt-cycle’ hypothesis 243; financial repression 63; financial sector development 49–54, 56, 69, 97, 103; Ghana 268; HarrodDomar model 40–5, 244, 269; India 30–2; inequality 32–9; investment climate 365; Kuznets 32–3; liberalisation 64, 77–8; macroeconomic stability 149; neoclassical growth model 45–7; New Growth Theory 47–9; official development assistance 182–7, 191; poverty reduction 27–32, 39, 56, 122–4, 179–80, 366; regional growth rates 150; savings relationship 337, 339–40, 341, 343, 344, 345; SMEs 319, 409 323–5; stock markets 104, 105; structural adjustment programmes 266 Guatemala 143 Guidotti, P E 69 Habermeier, K 190 Haiti 369 Harrod-Domar growth model (HDM) 40–5, 46, 47, 48, 244, 269 Hausmann, R 209 HDM see Harrod-Domar growth model ‘headcount’ poverty 28–9 health expenditure 115, 115, 139 heavily indebted poor countries (HIPCs) 177, 246–51, 287, 295 Heckscher-Olin (H-O) model of international trade 328–9 hedging 19, 211, 212 Helpman, E 48 Henry, P B 69 ‘herding’ 182, 183, 184 Hicks, J 104 highly leveraged institutions (HLIs) 289–90, 291 HIPCs see heavily indebted poor countries HIV/AIDS 177, 188, 251 HLIs see highly leveraged institutions Hong Kong 94, 107 Honohan, P 85, 152–3, 156, 158, 262 human capital 35, 269, 331, 364; neoclassical growth model 46, 47; New Growth Theory 48; SME-TNC linkages 327 IAS see International Accounting Standards IASC see International Accounting Standards Commission ICOR see incremental capital-output ratio IDA see International Development Association IDB see Inter-American Development Bank IFA see international financial architecture IFC see International Finance Corporation IFF see International Finance Facility IFIs see international financial institutions IFRS see International Financial Reporting Standards 410 Index IMF see International Monetary Fund immunisations 188 import-substitution industrialisation (ISI) 17, 323 import taxes 112, 136, 137 ‘impossible trinity’ 127, 240 income tax 111, 135, 142, 145–6, 148, 207 incomes 28–9, 30, 39, 96–7, 122–4; Ghana 267; Harrod-Domar growth model 41; inequality 32–3; savings relationship 341, 343, 344, 344, 345; SME sector 323–4 incremental capital-output ratio (ICOR) 41, 42 India: capital controls 242; capital flows 194, 194; equity flows 222; growth 30–2, 50, 76, 149, 179–80; poverty reduction 31, 179; savings 342; state ownership of banks 61–2, 319, 350, 351; tariffs 277 Indonesia: bond markets 107; financial crisis 71–2, 225, 226, 234; liberalisation 69, 79; poverty 234; SMEs 324 industrialisation 31, 33, 42 inequality 28, 29–39, 111, 348 inflation 16, 117–18, 117, 351, 352; Argentina 131, 132; Colombia 352–3, 352; decline in 148, 149; Ghana 267, 268; inequality 37, 38, 39; Philips curve 45; targeting 128, 129, 130 informal sector 94–5, 97, 144, 146, 300, 323, 363 information: asymmetric 22–3, 86, 90, 104, 109, 151, 152, 199–200, 349, 356; credit scoring 307, 308, 308, 312; disclosure of 358; Efficient Market Hypothesis 11, 21–2; financial statement lending 306–7; fixed exchange rates 128; flow of 356–7; intermediaries 52; lending infrastructure 312–14; macroeconomic stability 97; relationship lending 311 infrastructure 36, 37, 39, 312–19, 368 innovation 319, 320–2, 355, 362, 366 insolvency 63, 153 insurance 99, 301 integration 126, 202 Inter-American Development Bank (IDB) 269–71, 272–3, 272 interest rates 6, 58, 240, 349, 351–2; bonds 4–5, 108; debt 222, 244, 245; financial repression 60, 61, 63, 64; liberalisation 64, 65, 78, 79–80; monetary policy 126, 129, 130; savings 66–7, 343, 344; Thailand 74–5 intermediation 52, 64, 69, 97 International Accounting Standards (IAS) 304 International Accounting Standards Commission (IASC) 304–6 International Development Association (IDA) 265, 272 International Finance Corporation (IFC) 171, 264, 302 International Finance Facility (IFF) 187–8, 189 international financial architecture (IFA) 254, 255–96 international financial institutions (IFIs) 27, 28, 289, 290, 350; see also Bretton Woods institutions International Financial Reporting Standards (IFRS) 305–6 International Monetary Fund (IMF) 242, 256–62, 263, 273–4, 292–4; Asian financial crisis 92, 225, 226; capital controls 16; codes and standards 260; crisis prevention 237–8; criticisms of 281–2, 283; debt crisis 245; debt sustainability 252, 253; EMEPG Report 290, 291; Ethiopia 136–7; exchange rates 59; foreign direct investment 210–11; Ghana 267, 268; growth 27; HIPC initiative 248, 249, 250, 251; India 31–2; liberalisation 79, 80–1, 84; ‘Multilateral Consultation Process’ 292; official development assistance 186; private insurers 301; reform proposals 283, 284–6, 288, 295; special drawing rights 189; structural adjustment programmes 102, 136, 174, 248; ‘Washington Consensus’ 280, 281 International Trade Organisation (ITO) 274 investment 5, 10, 16, 68, 199; banking crises 227; capital controls 240–1; climate 365–7, 369–70, 373; crime impact on 360; ‘debt-cycle’ hypothesis 243; Ghana 267, 268; Harrod-Domar growth model 41, 42–3, 269; interest rates 67; Japan 338, 339; liberalisation 64, 72, 82; market-based systems 90; pension funds 354, 356; savings relationship 345; socially responsible 334; see also foreign direct investment investment banks Index investors 12, 15, 144, 200, 233–4, 236; institutional 5; ‘mania’ 20–1; market volatility 14; Millennium Development Goals 203; portfolio diversification 104, 105, 162; ‘retail’ 6; Tobin Tax 189 Iraq 184 Ireland 187 ‘irrational exuberance’ 57, 83, 356 ISI see import-substitution industrialisation Israel 79, 184 Italy 187, 322, 323, 353 ITO see International Trade Organisation Jalilian, H 54 Japan: Asian Development Bank 270; bank-based system 89–90; directed credit 86; ‘flying geese paradigm’ 328; foreign exchange reserves 196; foreign technology 321; ‘Multilateral Consultation Process’ 292; official development assistance 183, 184; savings 337, 338–9; SMEs 322, 323; socially responsible investment 334; tariffs 276, 277; World Bank 263 Jaramillo, F 69 Jordan 69 Kahneman, Daniel 23 Kaldor, Nicholas 34 Kaminsky, G 233 Kenya 320, 368 Keynes, John Maynard 14–15, 16, 21, 23, 32, 151, 256, 258, 263, 358 Keynesianism 17, 18, 24 Kim, J 190 Kindleberger, C 18, 20–1 King, R 53, 104 Kirilenko, A 190 Kirkpatrick, C 54 knowledge 48 Koch, D J 184 Korea: bond markets 107; contract enforcement 368, 368; ‘developmental state’ model 338; financial crisis 225, 226, 234; foreign technology 321; human capital development 364; liberalisation 69, 79; ‘national champions’ 329; savings rate 345, 345; SMEs 324; stock markets 94; US aid to 44 Kraay, A 27, 29, 30, 38 411 Krugman, P 210, 230, 231, 329–30 Kuznets, Simon 32–3 labour: education and training 367–8; Harrod-Domar growth model 41, 46; Heckscher-Olin model 329; human capital development 331; neo-classical growth model 46, 47; outsourcing 328; see also employment labour markets 20, 207, 364 land tenure 31, 361–2 Latin America: access to finance 346; bank lending 195, 218; capital flows 193, 193, 195; credit 313, 314; debt crisis 246; debt issuance 220–1, 221; deforestation 181; demographic changes 163; Doha Round 278; domestic investment 366, 366; equity flows 223; financial crisis 231; fiscal balance 116; fixed exchange rate peg 118, 127; foreign bank ownership 93, 219, 219; foreign direct investment 194; foreign exchange reserves 196; GDP per capita 123, 123, 124; growth rate 49, 150; inequality 33, 111; inflation 117; informal sector 95; InterAmerican Development Bank 269–70, 272; liberalisation 60, 78; loan approvals 273; Meltzer Report 287; poverty 179, 179, 282, 282, 372, 372; privatisation 100, 100, 101–2, 101; public expenditure 113, 115, 115, 139; R&D expenditure 321; savings rate 340, 341; short-term debt 215, 215, 217; stock markets 160, 160; structuralism 16–18; taxes 113, 138; TNCs 321 Laurens, B 241 least developed countries (LDCs) 29, 175, 213, 293; debt 245, 246, 249, 250, 251, 259; IDA loans 265; Millennium Development Goals 177; savings rate 343 Leblang, D 73, 75–6 legal frameworks 98, 298, 312, 314–16, 368–9 lender-of-last resort (LOLR) 8, 9, 237, 286, 294 Levine, R 52, 53, 104 Levy-Yeyati, E 130 Lewis, Arthur 42, 51–2 liberalisation 58, 60, 63, 65–88, 125; Argentina 132; arguments against 82–4, 85–7; domestic sector 68–9, 412 Index 84–7, 88; financial crises 71–2, 110, 229, 235, 349; financial depth 67–8; foreign ownership 92, 317; Ghana 267, 268; growth 77–8; interest rates 65; international resource allocation 69–71; Poverty Reduction Strategy Papers 248; predicted benefits of 64–5; savings 65–7, 343, 344; sequencing issues 78–82; shareholder rights 355; structural adjustment programmes 265–6; trade 279, 280 Liechtenstein 319, 351 ‘life-cycle hypothesis’ 341 life insurance 298 liquidity 236, 292, 301; crises 216, 238–9, 242, 290; risk 10; stock markets 15, 104–5, 106, 160, 161–2 Liu, L 53 Loayzu, N 340, 341 LOLR see lender-of-last resort London Stock Exchange 5, 99 Lopez, J H 28, 29, 30, 33, 35 Lucas, R E 21, 23, 48 Luxembourg 353 M&A see mergers and acquisitions macroeconomic stability 97, 103, 115–18, 148–50, 200, 291; crisis prevention 235; financial sector development 126, 351–3; fiscal policy 133, 134–5; IMF role 284 Madsen, R 339 Mahar, M 60, 67–8, 71, 79, 80 Make Poverty History 180, 249 malaria 177 Malawi 315 Malaysia: bond markets 107; capital controls 242; contract enforcement 368; financial crisis 225, 234; liberalisation 69, 79; savings rate 345, 345; stock markets 94 Mali 319, 351 Malkiel, B 11–12 ‘mania’ 20–1, 57, 75 Mankiw, N G 66 Mann, A J 143 market capitalisation 5, 89, 90, 91, 106, 107 market failure 13, 24, 83, 87, 122, 349, 350; correction of 109–10; regulation 362, 363 market risk 10 markets 2, 9–11, 18, 369; access to finance 346; behavioural finance 23–4; currency crises 230–1; Efficient Market Hypothesis 11–14; neo-liberalism 19, 20; see also bond markets; capital markets; equity markets; stock markets Marshall, Alfred 23 Masson, P 129, 130, 233 maternal health 177 Mauritius 207 McKinnon, Robert 58, 60, 64 McKinnon-Shaw hypothesis (MSH) 58, 65–6 McNamara, Robert 265 MDGs see Millennium Development Goals MDRI see multilateral debt reduction initiative Meier, G 328 Meltzer Report (2000) 283, 284, 285, 286, 287–8, 291, 293 mercantilism 40, 197 merchant banks mergers and acquisitions (M&A) 7, 212 Mester, L 307 Mexico: factoring 310; financial crisis 234, 259; liberalisation 69, 79; savings 342 microfinance 8, 96, 97 Microsoft 363 Middle East: credit 313, 314; debt denomination 201, 201; debt issuance 221, 221; deforestation 181; Doha Round 278, 279; domestic investment 366; equity flows 223; fiscal balances 140; foreign bank ownership 219; foreign exchange reserves 196, 196; GDP per capita 123, 124; growth rate 49, 150; oil wealth 372; poverty 178, 179, 179, 371, 372; privatisation 100, 101; savings rate 340; short-term debt 215, 216, 217 Milesi-Ferretti, G M 73 Millennium Development Goals (MDGs) 141, 175, 176–82, 187, 191, 203; debt sustainability 250, 252; International Finance Facility 188 Miller, M 314 Mirrlees, J 35 Mishkin, F 22–3 Mody, A 221 Moguillansky, G 211–12 monetarism 18–19, 116–17, 128 monetary policy 9, 116–17, 126–33, 168, 230, 267 Index Monetary Policy Committee (MPC) 117 monetisation 67 money markets 5–6 money supply 18, 116–17, 127, 128, 131 monitoring 119, 120, 157–8, 237, 357–8; financial statement lending 307; intermediaries 52; shareholder rights 356; see also surveillance ‘monsoonal effects’ 233 Monterrey Consensus (2002) 172, 175, 187 Montiel, P 149–50 moral hazard 22, 23, 151, 238; bank risk taking 357; IMF lending 283, 284, 286, 288, 291, 293; property rights enforcement 316 Morales, Evo 102 Morgenthau, Henry 263 Morocco 79, 183 mortgages 7, 347–8 MPC see Monetary Policy Committee MSH see McKinnon-Shaw hypothesis multilateral debt reduction initiative (MDRI) 250, 251 ‘multiple equilibria’ 230–1, 243–4 Mundell-Fleming model 127 Mundell, Robert 98, 127, 133 Mussa, M 233 mutual banks ‘national champions’ 86, 329, 330 national income 29, 53, 141 NBFIs see non-bank financial institutions NCM see neo-classical growth model neo-classical economics 51, 79, 81 neo-classical growth model (NCM) 45–7 neo-liberalism 19–20, 81, 280–1 Netherlands 94, 183, 184 New Growth Theory (NGT) 47–9 New Trade Theory (NTT) 329–30 New Zealand 66, 79 NGOs see non-governmental organisations NGT see New Growth Theory Nigeria 105, 106, 213, 271, 368 non-bank financial institutions (NBFIs) 94, 96, 354 non-governmental organisations (NGOs) 173, 184, 250, 251 North Africa: credit 313, 314; debt denomination 201; debt issuance 221; deforestation 181; Doha Round 278, 279; domestic investment 366; equity 413 flows 223; foreign bank ownership 219; GDP per capita 123, 124; growth rate 49; poverty 178, 179, 371, 372; privatisation 100, 101; R&D expenditure 321; savings rate 340 Northern Rock 357 Norway 187 NTT see New Trade Theory Obstfeld, M 231 OCA see optimum currency area Ocampo, J A 291, 295 ODA see official development assistance OECD see Organisation for Economic Cooperation and Development official development assistance (ODA) 43, 44, 113, 170–5, 244, 246; conditionality 186; growth 182–7; HIPCs 251; International Finance Facility 187–8, 189; Meltzer Report 287; Millennium Development Goals 175, 176–82, 187, 191, 203; savings 343, 344 oil prices 245, 271 Oomes, N 69 optimum currency area (OCA) 133 Organisation for Economic Cooperation and Development (OECD) 77, 171–2, 256 ‘original sin’ problem 200, 236, 244 Orszag, P R 165–6, 167 outsourcing 328, 332 Overseas Development Council (ODC) report (2000) 284, 286 Pacific region: credit 313; debt issuance 221; deforestation 181; domestic investment 366; foreign bank ownership 219, 220; growth rate 49; poverty 179, 372, 372; savings rate 340; short-term debt 217, 217 Pareto efficiency 34, 109 Paris Declaration on Aid Effectiveness 187 partnerships 177–8, 326–7, 328, 330–1, 332 Patel, C K 137 ‘pay-as-you-go’ (PAYG) pension schemes 162–3, 164, 165–6, 167, 168, 343 payroll taxes 111, 112–13, 112 pensions 159, 162–8, 343, 344, 354, 356 Permanent Income Hypothesis 32, 341 Perotti, R 36 Peru 79, 183 414 Index Philippines 97, 107, 225 Philips curve 45 Pigou, Arthur 109 Poland 319, 351 policy 25–6, 126, 373; business costs 367–8; inequality and growth 36–8; investment climate 369–70; macroeconomic stability 149–50; neoliberalism 81; savings 342–3, 344 political issues 128–9, 146, 349, 350 Popper, Karl 25 population growth 46, 179–80 portfolio flows 220–3, 242, 340; composition of capital flows 195, 205, 209, 209, 214; hierarchy of capital flows 202, 204, 223; liberalisation 70–1, 70; volatility 194, 199, 202, 220, 234–5 positive theory of fiscal policy 134 post office savings banks poverty 26, 282, 371–3; financial crises 71–2, 234; financial sector development 53–4, 348–9; Ghana 267; growth elasticity of 30, 34, 39; growth relationship 27–32, 56, 122, 366; inequality 28, 30, 31, 32, 34; investment climate 365, 366–7; liberalisation 64, 84; microfinance 96, 97; Millennium Development Goals 176, 178–9; official development assistance 183, 185; SME sector 324; structural adjustment programmes 266; World Bank 265, 269, 273 Poverty and Social Impact Assessment (PSIA) 136–7 poverty reduction and growth facility (PRGF) 251, 266, 268, 284–5 Poverty Reduction Strategy Papers (PRSPs) 248–9, 251, 266, 268, 274 Prebisch, Raul 17 Prescott, E C 104 PRGF see poverty reduction and growth facility prices 56, 128, 129, 189, 309; capital controls 239, 240, 242; Efficient Market Hypothesis 11, 12, 13, 224; investment climate 367; ‘irrational exuberance’ 57; structural adjustment programmes 266; Tobin Tax 190 principal-agent problems 85 Pritchett, L 47, 49–50 private equity companies private sector 337, 359–65, 373; access to finance 345–6; capital flows 191–203; capital structure 297–8; credit 313–14, 313; monitoring of banks by 157–8; SME finance 302–12; structural adjustment programmes 266; trade finance 301; see also small-andmedium-enterprises Private Sector Involvement (PSI) 253, 284, 286, 290 privatisation 100–3, 110, 159, 280; banks 60–3, 79; currency risk 212; neoliberalism 19, 20 pro-poor growth 27, 28–9, 38, 39 productivity 40, 48, 51, 105, 337; agricultural 360–1, 362; liberalisation 64, 73; SME-TNC linkages 327–8 property rights 280, 314–16, 325, 355, 359, 360 PRSPs see Poverty Reduction Strategy Papers PSI see Private Sector Involvement PSIA see Poverty and Social Impact Assessment psychology 23, 57 ‘public choice’ school 134 public expenditure 113–15, 138–9 public goods 108–9, 139, 367–8 quality of life 26, 54 Quinn, D 74 R&D see research and development ratings agencies 158, 221, 358 Ravallion, M 29, 30 RDBs see regional development banks Reagan, Ronald 19 redistribution of wealth 26, 36, 63, 110–11 reform 168–9, 255, 283–95; banking sector 150–9; capital markets 159–62; fiscal policy 133–41; investment climate 369–70; monetary policy 126–33; pensions 162–8; tax 141–8 regional development banks (RDBs) 269–74, 281, 282, 287 regulation 3, 72, 99, 118–22, 295, 354–5, 368–9; banking crises 228, 229; banking sector 152–9, 236–7, 357–8; central banks 9; codes and standards 261, 262; EMEPG Report 289; financial repression 61; financial sector development 103; IMF role 260; international financial architecture 291; labour market 364; lending infrastructure 312, 316–19; liberalisation 78, 79, 80, 110; market Index failure 350, 362, 363; minimalist 85, 152–3; private sector development 362–4; privatisation 103; see also capital controls; government intervention; supervision ‘regulatory capture’ 357 Reinhart, C 233 Reisen, H 199 relationship lending 90, 302–4, 311 rent-seeking 370 Reports on the Observance of Standards and Codes (ROSCs) 261 research and development (R&D) 48–9, 212, 321, 332 revenue raising 142–3 Revised Minimum Standard Model (RMSM) 45 Reynoso, A 66 ‘Ricardian equivalence hypothesis’ 342 Ricardo, David 40 risk 9–10, 236, 259, 346, 357–8; adverse selection 349; asset-based lending 309; banks 85, 151, 152, 153; bonds 4, 5; currency 92–3, 211, 212, 217; derivatives 19; equity 5; exchange rate 92; foreign direct investment 205, 209; intermediaries 52; money markets 6; TNCs 211–12; trade finance 300, 301 RMSM see Revised Minimum Standard Model Rodrik, D 35–6, 50–1, 73–4, 223–4, 229 Rojas-Suarez, Liliana 155–6, 157, 158 Romer, P 48 Roosevelt, Franklin D 59 ROSCs see Reports on the Observance of Standards and Codes Rostow, W W 43 rule of law 36, 37, 38, 39, 325 Russia: crime rates 360; financial crisis 226; foreign bank ownership 63; lack of legal enforcement 355; liberalisation 87; official development assistance 183; state ownership of banks 319, 351; see also Soviet Union, former Sakakibara, E 133 sales taxes 112–13, 112, 135, 136 Samaha, K 306 sanitation 177 SAPs see structural adjustment programmes Sargent, T J 21 Saudi Arabia 292 415 savings 3, 51, 52, 105, 244, 337–45; capital flows 199; ‘debt-cycle’ hypothesis 243; Ghana 267, 268; Harrod-Domar growth model 42–3; Kaldor hypothesis 34; liberalisation 64, 65–7; poverty reduction 53–4 Scandinavia 172 Schiantarelli, F 69 Schiller, Robert 57 Schmidt-Hebbel, K 241 Schmidt, R 191 Schumpeter, Joseph 51, 56, 103, 366 SDRM see Sovereign Debt Restructuring Mechanism SDRs see special drawing rights securities 5–6, 159 security 359–62 Senegal 207 Servén, L 30, 149–50 settlement services 3, 6, Shah, M 320 shareholder rights 355–6 shares 3, 5, 99 Shaw, Edward 58, 60, 64 Shleifer, A 105 short-term loans 215–20, 239–40, 242 SIDA see Swedish International Development Authority Singapore 94, 107, 321, 343 slum dwellers 177 small-and-medium-enterprises (SMEs) 111, 297, 299–312, 319–34; access to finance 346; bank lending 218, 219, 302–12; dynamism 320, 322–3; entrepreneurship and innovation 319, 320–2; growth 323–5; new job creation 319, 320, 322; tax and regulatory environment 316–17; TNC linkages 321, 325–34 Smith, Adam 40 social protection 289, 290 social welfare 133–4 socially responsible investment (SRI) 334 Solow, Robert 45–7 Soros, George 280 Soto, M 240–1 South Africa: equity flows 222; foreign direct investment 213; liberalisation 79; stock market 94, 105, 106; tariffs 277 South Asia: access to finance 346; credit 313; debt denomination 201; deforestation 181; Doha Round 278; domestic investment 365, 366; equity 416 Index flows 222, 223; foreign bank ownership 219, 220; GDP per capita 123, 124; official development assistance 184; poverty 179, 179, 372, 372; privatisation 100, 100, 101; R&D expenditure 321; savings rate 340, 341; see also India Southeast Asia: Cold War 44–5; contagion 233; ‘flying geese paradigm’ 328; growth rate 77; human capital development 331; inequality 33; labour outsourcing 328 Sovereign Debt Restructuring Mechanism (SDRM) 253 Soviet Union, former 42, 43, 59, 62, 87; see also Russia Spahn, P B 190 Spain 353 special drawing rights (SDRs) 189, 257, 295 speculators 15, 128, 131, 189, 190 ‘spillover effects’ 48, 212, 233, 327 Spratt, S 250 SRF see Supplemental Reserve Facility SRI see socially responsible investment Sri Lanka 79 Stapleton, P 306 state ownership 80, 151, 158, 317, 350; asset price 318–19; banking crises 229; development banks 8; financial repression 60–2 Stiglitz, J.: Asian financial crisis 226; asymmetric information 22; critique of liberalisation 82–3; financial repression 86–7; market discipline 158; market failure 13, 110; pension reform 165–6, 167; regulation 85, 152–3, 156, 262 stock market capitalisation 5, 89, 90, 91, 106, 107 stock markets 5, 15, 94, 96, 104–7, 160–2 structural adjustment programmes (SAPs) 173, 248, 265–8, 271, 273, 372; criticisms of 282; Ethiopia 136; fiscal reforms 134–5; foreign bank ownership 353; inequality 37, 38, 39; New Growth Theory 49; privatisation 102; SIDA 173–4; tax reforms 146–7; ‘Washington Consensus’ 281 structuralism 16–18, 59 Sturzenegger, F 130 subprime lending crisis 346, 347–8 Subramanian, A 50–1 supervision 9, 99, 289; banking crises 228, 229; banking sector 119, 120, 153, 156, 156, 157, 158–9, 236–7, 357; codes and standards 261, 262; liberalisation 78, 79, 80, 85, 110 Supplemental Reserve Facility (SRF) 238 suppliers 326, 327–8, 330 surveillance 237, 242, 258, 259–60, 262, 285, 295; see also monitoring sustainable development 177, 355 Sweden: banking crises 228; official development assistance 172–4, 187; SMEs 322, 323; stock markets 94 Swedish International Development Authority (SIDA) 172–4 Switzerland 94, 353 systemic risk 10, 151 Taiwan: bond markets 107; capital controls 242; ‘developmental state’ model 338; foreign technology 321; state ownership of banks 319, 351 Tanzania 182–3, 320 Tanzi, V 133, 147 tariffs 136, 144, 276, 276, 277–8, 279; export processing zones 206–7; GATT 275; Millennium Development Goals 177 tax 36, 94, 111–15, 134, 298; Ethiopia 135–7; evasion 147–8; export processing zones 207; Ghana 268; investment climate 367; lending infrastructure 312, 316; neo-liberalism 20; private sector development 363–4; progressive 110–11, 145, 146; reforms 137, 138, 141–8; savings 342, 344; Tobin Tax 189–91; ‘unremunerated reserve requirement 240; ‘Washington Consensus’ 280 technical assistance 174–5 technology: Millennium Development Goals 178; SME-TNC linkages 326–7, 330–1; technological progress 46, 47, 48, 49, 52; technology transfer 212, 321, 330 Thailand: bond markets 107; financial crisis 199, 225, 234; liberalisation 69, 74–5, 79, 83; official development assistance 183; stock markets 94 Thatcher, Margaret 19 Tinbergen, Jan 133, 134 TNCs see transnational corporations Tobin, J 12–13, 69, 189 Tobin Tax 189–91 Index Togo 319, 351 trade: contagion 232; GATT 274–5; Heckscher-Olin model 328–9; IMF objectives 257; liberalisation 78, 79, 80, 279, 280; Millennium Development Goals 177; New Trade Theory 329–30; openness 37, 38, 39, 132; WTO 275–9 trade credit 310–11, 312 trade finance 300–1 trade-related-investment-measures (TRIMS) 208, 275, 331 trade taxes 112, 112, 113, 136, 137, 141, 144, 147–8 transaction costs 52, 190, 325 transactions lending 302–3, 304–11, 312, 313 transfer pricing 148 transnational corporations (TNCs): corporate social responsibility 333–4; foreign direct investment 205–6, 208, 210, 211–12, 373; SME linkages 321, 325–34; socially responsible investment 334; tax evasion 148 transparency 260, 261, 286, 289, 290, 291, 356 Trebbi, F 50–1 TRIMS see trade-related-investmentmeasures Tunisia 319, 351 Turkey: factoring 310; financial crisis 234; interest rates 65, 65; liberalisation 69, 79; SMEs 324; stock market 106 Tversky, Amos 23 Udell, G F 311, 312, 314, 316–17 Ueda, K 69 Uganda 182 Ukraine 324 Umlauf, S R 190 UN see United Nations uncertainty 21, 25, 199–200, 202, 298, 325; regulatory 363; risk 10; savings relationship 342, 343 UNCTAD see United Nations Committee on Trade and Development unemployment 16, 31–2, 45, 132 UNITAID 188 United Kingdom (UK): Accounting Standards Board 305; Bank of England 9, 117; deregulation 66; income tax 143; London Stock Exchange 5; National Insurance 111; Northern Rock crisis 357; official 417 development assistance 183, 186–7; pension funds 354, 356; savings rate 345, 345; socially responsible investment 334; stock markets 94; World Bank 263 United Nations (UN) 28, 188–9, 199–200, 262; capital controls 239; capital flows 191, 198; foreign direct investment 204–5; Millennium Development Goals 141, 175, 176–82, 187; official development assistance 170–2, 185, 186, 244 United Nations Committee on Trade and Development (UNCTAD) 171, 326–7, 331, 333 United States (US): access to finance 95; accounting standards 305–6; assetbased lending 309; banking sector 63, 318; Bretton Woods institutions 256; capital flows 198; Cold War 43–4; corporate abuses 356; crime rates 360; debt crisis 245; deposit insurance 9; Federal Reserve 9, 117; Glass-Steagall Act 317–18; Inter-American Development Bank 269–71; interest rates 222, 233; ITO 274; market-based system 89–90, 97; ‘Multilateral Consultation Process’ 292; official development assistance 43, 183, 184, 187; Payroll Tax 111; savings rate 345, 345; SMEs 320, 322, 323, 324; socially responsible investment 334; stock markets 94; subprime lending crisis 346, 347–8; tariffs 276, 276, 277; trade credit 311; trade deficit 293; trade dispute with China 196–8; World Bank 262, 263 universal banks ‘unremunerated reserve requirement (URR) 240–1 Uy, M 86–7 Valdés, R 241 Valdés, S 240–1 VAT 112, 135, 136–7, 141–2, 144, 145 Velasco, A 223–4 Venezuela 79, 102 venture capitalists Vietnam 50, 182, 242, 328 Villanueva, D 67 Vishny, R W 105 volatility 13–14, 19, 20, 24, 77, 290; aid flows 185–6; banking crises 229; capital flows 83, 191–2, 194, 199, 418 Index 202–3, 204, 220, 223, 234–5, 236, 242; debt denomination 201–2; exchange rates 118, 235; financial sector development 348; growth rate 122–3; revenue 143; stock markets 106; transaction taxes 190 ‘vulture funds’ 251, 253 wages 17, 166, 320, 328 Wall Street Crash 58–9, 76, 256, 317–18 ‘Washington Consensus’ 20, 280–1, 350 Wei, S J 190 Weiss, A 69, 152 welfare economics 56 Westerhoff, F 190 White, H 28 White, Harry Dexter 256 Williamson, J 60, 67–8, 71, 79, 80, 280, 284, 285–6 women 176, 177 World Bank 49–50, 126, 256, 262–9, 272, 273–4, 370–1; Asian financial crisis 225; bank monitoring 357–8; bank privatisation 62; banking crises 227, 228; capital markets 159, 161; codes and standards 260; competition 353, 354, 369; credit bureaus 356; criticisms of 281–2; debt 252, 281, 282; deposit insurance 157; EMEPG Report 290, 291; export processing zones 206; financial sector development 52, 348, 349, 351, 367, 373; ‘financing gap’ 45; foreign bank entry 218, 219; growth 27; HIPC initiative 248, 249, 250, 251; investment climate 365, 366, 370; labour market regulation 364; legal environment 314, 315, 316; lending infrastructure 312; mismanagement 151–2; pension reform 167; private sector development 359–65; R&D expenditure 321; reform proposals 287; regional development banks 270, 271–2; regulation 355, 363, 369; SME finance 299, 300, 302; structural adjustment programmes 102, 174, 248, 265–8; ‘Washington Consensus’ 280, 281 World Trade Organisation (WTO) 208, 255, 256, 275–9, 288, 331 Wyplosz, C 74 youth programmes 178 Zeira, J 35 Zervos, S 104 Zimbabwe 105, 106, 206–7, 320 Zolt, E M 142, 146 ... Cataloging in Publication Data Spratt, Stephen Development finance : debates, dogmas and new directions / Stephen Spratt p cm Includes bibliographical references and index Finance Developing countries... Debates, dogmas and new directions Stephen Spratt Development Finance Debates, dogmas and new directions Stephen Spratt First published 2009 by Routledge Park Square, Milton Park, Abingdon, Oxon... hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers British Library Cataloguing in Publication