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1、Plan for study on financial system and economic development (ver. 0.10)Kang-kook LeeStudy on the financial systems, capital account liberalization and growth1. IntroductionIs the open and market-based financial system is helpful to economic growth in developing countries? This is a question that has
2、 attracted lots of economists and a number of theoretical and empirical studies are pouring out. However the answer is not yet clear and its still an open question. Most mainstreams argue that capital account liberalization can contribute to faster economic development significantly to make the mark
3、et work better. Meanwhile, recently interests in the financial structure, i.e. market-based vs. bank-based system has gained a great momentum. Neoclassicals seem to support the market-based system better at encouraging development with better information flows, while the bank-based system could lead
4、 to a crony-capitalism like in the East Asian countries. Thus, their policy recommendation for developing countries is almost always to develop a stock market and open the financial system. In fact, there have been lots of cross section studies to test this argument. On capital account liberalizatio
5、n, some support that it is helpful to development, while others refute it (IMF, 2001; Edwards, 2001; Rodrik, 1998). On the financial structure, both of the banks and stock market seem to be important in development and the structure itself seems not relevant at all for growth (Levine 2000a; Levine a
6、nd Zervos, 1998). However, it is so well known that the current data for capital account liberalization are so bad that we badly need to develop a better and extensive index to see the effect of financial opening (Brune et al., 2001; Martin et al., 2001). Considering the financial structure, at leas
7、t in developing countries the bank-based system could be more desirable in development, shown in the East Asian experience (Stiglitz and Uy, 1996; Tadesse, 2001). It calls on us to study the benefit of open the financial market based on better data and considering the level of development. We introd
8、uce recent far-reaching index of capital market opening constructed based on the IMF report in this study, and study if the importance of banks or the stock market is different according to the level of economic or financial development. First, we pose a question if the capital account liberalizatio
9、n is really good for development based on the better extensive opening index. Next, we will divide countries into bank-based and market-based countries and see which system is better in the initial level of development. Lastly, we further question if the impact of financial opening has a different e
10、ffect on the bank-based and market-based financial system based on our extensive data.2. Financial system, opening, and economic growth- Theoretical arguments and maybe models? : role of the financial system, bank-based vs. market-based, capital account liberalization and growth, (maybe I should do
11、an independent paper (?) about some models how the bank-based system could be good and capital account liberalization is bad, leading to more instability and crisis)- Former studies : ambiguous result of impact of financial opening, due to measurement of opening, bank-based vs. market-based is not r
12、elevant for growth at all empirically. However, no good data for opening, especially in the 90s, and the bank-based system looks better in financially underdeveloped countries. Many studies on capital account liberalization not leading to economic growth when institutions are not good, but just lead
13、ing to more instability and crises- Bank-based system is essential in economic development, i.e. in developing countries : better monitoring, promoting long-term stable investment and even solving coordination problems (it is necessary for early industrialization, and in the bank-based system financ
14、ial opening could be bad) Rajan and Zingales, 1999; Stultz, 2000; Allen and Gale, 2000, Financial opening may lead to a speculation-led development and overaccumulation, leading to crises.- Hypothesis : Bank-based is better in growth in the low level of development, capital account opening is not he
15、lpful to economic development, specially for developing countries, and financial opening would be worse in the bank-based system (?) - developing former studies considering financial systems3. Empirical test : data and models= Relevant Data- financial development, and system data : Demirguc-Kunt and
16、 Levine, 1999 - maybe industry data : Tadesse, 2001 not sure- extensive financial opening data : we can construct extensive sets following extensive Quinn dataset (Quinn, 1997), new CACAO data (Martin, 2001), or other dataset (Brune, 2001), if available- others for cross section study : Pennworld ta
17、ble, IFS, WDI et al.= possible models1) capital account liberalization and growth* growth and financial opening using the extensive dataset, first of all to construct the dataset is essential for that* check out if the impact is really different according to the level of economic or financial develo
18、pment : using interaction term between them* check out if the sequencing is important : using interaction with trade opening and macroeconomic distortion (Artera et al., 2001)2) dividing countries into low and high financial development* growth and financial system : bank-based better or banks are m
19、ore important in low financial development* growth and financial opening (?) : opening might be worse in low financial development3) dividing countries into bank-based and market-based* growth and financial opening : opening is worse in bank-based system?or, with pooled data and financial system ind
20、ex variable * financial opening(if we use a change of variables or. level.?)4. Result and discussion- lets see, my point is against the mainstream argument. Considering developing countries, we should not open the financial market and take bank-based system?5. Concluding Remarks Allen, Franklin and
21、Gale, Douglas (2000), Comparing Financial Systems, MIT Press, Cambridge, MA.Arestis, Philip and Demetriades, Panicos (1997), Financial Development and Economic Growth: Assessing the Evidence, The Economic Journal, 107(May, 1997) Artera, C. Eichengreen B. and Wyplosz. (2001) When Does Capital Account
22、 Liberalization Help More Than It Hurts. NBER Working paper 8414.Beck, Thorsten, Levine, Ross and Loayza, Norman (1999). Finance and the Sources of Gorwth. University of Minnesota, Carlson School of Management: Working paper 9907.Brune, N. Garrett, G. and Guisinger, A. (2001). The Political Economy
23、of Capital Account Liberalization. Paper prepared for delivery at the 2001 Annual Meeting of the American Political Science Association,Chang Chun (2000), The Informational Requirement on Financial System at Different Stages of Economic Development: The Case of Korea. Mimeo, University of Minnesota,
24、 Carlson School of Management. Demirguc-Kunt, A. and Levine R. (1996), Stock Market Development and Financial Intermediary Growth: Stylized Facts, World Bank Economic ReviewEdwards, S. (2001). Capital Mobility and Economic Performance: Are Emerging Economies Different? NBER working paper 8076.Fry, M
25、axwell J. (1997), In Favour of Financial Liberalisation, The Economic Journal, 107(May, 1997) IMF. IMF economic outlook 2001. chapter 3.Klein, M and Oliveri, G. (2000). Capital Account Liberalization, Financial Depth, and Economic Growth. NBER Working paper Levine, Ross. (1997) Financial Development
26、 and Economic Growth: Views and Agenda, Journal of Economic Literature, vol. 35, June._ (2000a), Bank-based or market-based financial systems: Which is better, University of Minnesota, Carlson School of Management, working paper 0005._ (2000b), International Financial Liberalization and Economic Gro
27、wth, Review of International Economics, forthcoming._. and Zervos, Sara (1998), Stock Markets, Banks, and Economic Growth, American Economic Review, vol. 88, no. 3. _. and Demirguc-Kunt, Asli (2000), Bank-Based and Market-Based Financial Systems: Cross-country Comparisons. Mimeo, World Bank._. Loayz
28、a, Norman and Beck, Thorsten (2000), Financial Intermediation and Growth: Causality and Causes, Journal of Monetary Economics, 46.Martin, C. Plumper, T. and Schneider, G. (2001) Economic Openness in Developing Countries: And Empirical Investigation using CACAO. Mimeo.Quinn, Dennis. (1997) The Correl
29、ates of Change in the International Financial Regulation, American Political Science Review, 91(3), 531-51.Rajan, Raghuram G. and Zinggales, Luigi (1998), Which Capitalism? Lessons from the East Asian Crisis, Journal of Applied Corporate Finance._ (1999), Financial Systems, Industrial Structure, and
30、 Growth, mimeo. Chicago University. Rorik. D. (1998). Who Needs Capital Account Convertibility?. Essays in International Finance. Princeton University.Rossi, M. (1999), Financial Fragility and Economic Performance in Developing Economies: Do Capital Controls, Prudential Regulation and Supervision Ma
31、tter? IMF Working Paper. WP/99/66Singh, Ajit (1997), Financial Liberalisation, Stockmarkets and Economic Development, The Economic Journal, 107(May, 1997)_. and Weisse, Bruce A. 1998. Emerging Stock Markets, Portfolio Capital Flows and Long-term Economic Growth: Micro and Macroeconomic Perspective.
32、World Development 26 (4).Stiglitz, Joseph E. (1996). Financial Markets, Public Policy, and the East Asian Miracle. The World Bank Research Observer 11(2).Stultz, Rene M. (2000), Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective. Mimeo, Ohio University.Tadesse, S. (
33、2001). International Financial Architecture and Economic Performance: International Evidence. Mimeo.Takagi, Shinji (2000), Theoretical Perspectives and Conceptual Issues in the Development of Financial Markets in East Asia. Paper presented at Asia Development Forum 2000, Asia Development Bank.Econom
34、ic growth and income distribution in Korea : growth regime and financial system1. IntroductionEconomic growth and income distribution are the most important topics in economics that cannot be understood separately. When capitalist accumulation is based on investment it is essential to explain what d
35、etermines investment and how income distribution is related to it. Recent post-Keynesian arguments shed important light on this question following the tradition of Marx, Keynes and Kalecki. They state that investment is determined by expected profitability, hence by the profit share and capacity uti
36、lization. In this setting, the wage has a multiple role of a cut of the share for capitalists, a source of aggregate demand and even a mechanism to work harder. This theory provides us with a useful tool to explain the various regimes of accumulation and its change. Several studies attempted to unde
37、rstand the history of capitalist development in this respect theoretically and empirically (Marglin and Bhaduri, 1990; Bhaskar and Glyn, 1995). While most of them are mainly focused on the experience of developed countries, recently researchers try to study developing countries with this framework.
38、However, the model should incorporate various institutional difference and government policies to enrich the analysis. And still we have only few studies about the experience of developing countries that may be different from the profit squeeze experience of developed countries. In particular on Kor
39、ea, there are conflicting arguments that support the profit-led and wage-led growth respectively (Jang, 1998; Seguino, 2000). In this paper, we develop the model considering the character of the financial system, like opening and the financial structure, and apply it to the Korean experience. Since
40、Korea went through very rapid economic growth and industrialization, we may well think more of capital productivity to explain investment unlike former studies. As well known, after the miraculous economic development for several decades, the Korean government introduced a careless financial liberal
41、ization and opening with a retreat of industrial policies. This broke up the old well-working Korean developmental state model and led to the crisis. We will show what kind of accumulation regime existed and how it changed with the government policy like financial liberalization extensively. In so d
42、oing, we can find the breakup of old institutions led to a kind of overaccumulation, excessive investment despite falling profitability, and finally the crisis.2. Growth, distribution and financial system- Former models including Marglin and Shor (1990), Bhaskar and Glyn (1995), Boyer and Bowles (19
43、95) etc.- Empirical studies and studies about developing countries, Korea, Turkey.- International dimension and other institutions : growth regime and financial system, and capital market opening etc.- Constructing the PK model considering financial opening, financial structure and industrial polici
44、es, the question is how to incorporate the bank-based system, financial opening and investment coordination into the model : upward sloping IS curve and different PE curves?- Probably with more opening, more profit-led, while with bank-based and closed system stable long-term growth possible, and wi
45、thout investment coordination excessive investment possible, but not sure about the wage-led? 3. Macroeconomic accumulation regime in Korea : From miracle to crisis- Theoretical and empirical model based on former studies- I/K = f ( profit share, capacity utilization, capital productivity etc.), wel
46、l-known time series model of investment using aggregate data, maybe complemented by microeconomic data?- Growth regime and its change, role of institutions and policies related to it : financial system, opening and maybe industrial policy - Specially, impact of financial liberalization and the end o
47、f investment coordination in the early 90s on excessive investment or breakup of the linkage b/w profit rate and investment, speculation-led investment? : test on a structural break like Chow test in the early 90s- Empirical test with data (from the 60s to 2000 : need to collect data)4. Summary and
48、conclusionAkyuz, Yilmaz and Gore, Chales. 1996. The Investment-Profits Nexus in East Asian Industrialization. World Development 24(3). Ballassa, Bela. 1988. The Lessons of East Asian Development: An Overview. Economic Development and Cultural ChangeArmstrong, Philip, Glyn, Andrew and Harrison, John. 1991. Capitalism Since 1945. Basil Blackwell.Bank of Korea. 2000. Analysis on the Rate of Return on Capital in Korea. (in Korean)Bhaskar, V. and Glynn, Andrew. Investment and Profitability: The Evidence from the Advanced Countries. In Epstein, Gerald A. and Gintis, Herbert M.(eds.) 1995.
