Role of Government in developing financial systems

Aslı Demirgüç-Kunt has written a nice paper on the topic.

The empirical literature on finance and development suggests that countries with better developed financial systems experience faster economic growth and enjoy lower levels of poverty and income inequality. If finance is important for development, why do some countries have growth-promoting  financial systems while others do not? This paper argues that the governments play an important role in building effective and inclusive financial systems and discusses policies to make finance work for development.

She lists following areas where govt plays a role:

III.a Political and Macroeconomic Environment
III.b Legal and Information Infrastructure
III.c Regulation and Supervision
III.d Contestability and Efficiency
III.e Government Ownership of Financial Institutions
III.f Financial Liberalization
III.g Facilitating Access

Above all the paper serves as an excellent literature review on how finance helps in economic growth and where it does not.

All this is ok but it is high time economists look at micro of finance industry. All these macro ideas of how finance helps etc are well known and appreciated. What is to be thought more carefully is how financial industry works and how incentive structure creates havoc quite frequently.

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2 Responses to “Role of Government in developing financial systems”

  1. mahperi.com Says:

    The main task of financial management include

  2. Umar yahaya Says:

    Why global economic melt down?

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