Financial Structure, Financial Development And Growth Of Open Economies

We investigate the relationship between financial development and growth of open economies in an endogenous framework. The main aspects of this paper include:What is the core factor creating a growth-promoting financial system?What is the relationship between the level of financial development and the degree of openness?What is the relative merits of bank and market during the path of economic balanced growth?What is the relationship between institution and economic balanced growth?Keys to these questions represent parts of the policy implication of financial development in open economies.The paper consists of seven chapters. The outline and main viewpoints are shown below.Introduction. In this chapter,we give relative presentation of the paper including the object of study,framework and outline.Chapter 1——Financial Development and Economic Growth: Theory and EvidenceResearch in financial development is examined in here. As the evolution of economics,most economists share the opinion that financial development is beneficial to economic growth. At the end of this chapter,we study the endogenous financial development theory and path dependence of financial development.Chapter 2 & Chapter 3 include the main idea of the whole paper.Chapter 2——Financial Structure and Growth of Open Economies: Function and EfficiencyThis chapter compares the difference in function and growth effect between bank-oriented and market-oriented financial structure. A bank-oriented or market-oriented structure evolves depending upon firm-financing choices. It is not possible to say unequivocally which of the two systems is better for growth. The growth rate depends,crucially,on the efficiency of financial and legal institutions. Specifically,institutional factor is a fundamental determinant of growth.Chapter 3——Financial System Imperfection and the Instability of Open EconomiesThis chapter introduces a dynamic open economy model for analyzing the role of financial factors as a source of instability in open economies. In economies at an intermediate level of financial development,full capital account liberalization may actually destabilize the economy in short run. So,under the condition of financial system imperfection,full capital account liberalization is very dangerous. On the other hand,FDI does not destabilize. Chapter 4 & Chapter 5 deal with the banking system and market separately.Chapter 4——Banking System Vulnerability in Open EconomiesThis chapter studies the relationship between capital flows and stability of banking system,banking system efficiency and social welfare. As the asymmetry between the time needed for investment to mature and the timing of investors,the banking introduce the possibility of runs during the course of liquidity creation. Banking crisis is inevitable when shock happens.Moreover,we show that less efficient intermediation technology raise the riskiness of projects,overborrowing would arise even in the absence of deposit insurance.Chapter 5——Capital Market Development and Growth of Open EconomiesAs shown above,banking system can not bear enough financial function in open economies,capital market development is necessary then. At first,we present a dynamic general equilibrium analysis of stock market development as a framework that admits two-way causality in the relationship between stock market and growth. Stock market development implying a relatively advanced state of real and financial development. In the second part of this chapter,we show that speculative bubbles on equity raise the market value of firms,thus encouraging entrepreneurship,firm creation,investment and growth. Since speculative bubbles can arise only on traded assets,these results imply that development of equity market can lead to higher investment and faster growth. At last,we analysis the role of bond market in financial development and overcome the inefficiency of banking system. Chapter 6——Institution,Financial Development and Growth of...