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Religion and Finance

Comparing the Approaches of Judaism, Christianity and Islam

Mervyn K. Lewis and Ahmad Kaleem

Judaism, Christianity and Islam all impose obligations and constraints upon the rightful use of wealth and earthly resources. All three of these religions have well-researched views on the acceptability of practices such as usury but the principles and practices of other, non-interest, financial instruments are less well known. This book examines each of these three major world faiths, considering their teachings, social precepts and economic frameworks, which are set out as a guide for the financial dealings and economic behaviour of their adherents.
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Alina Mungiu-Pippidi

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Structural Reforms for Growth and Cohesion

Lessons and Challenges for CESEE Countries and a Modern Europe

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

Effective and well-designed structural reforms are key to shaping Europe’s future in the context of the formidable challenges facing the continent today. This book examines the achievements and failures of past structural policies so that future ones can be adapted to address remaining and newly emerging challenges with greater success. Highlighting the social aspects and distributional effects of reforms that go beyond liberalization and deregulation, the book covers key issues facing future Europe, particularly those arising from technological innovation.
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Robert Cull, Maria Soledad Martinez Peria and Jeanne Verrier

This chapter presents recent trends in government and foreign bank ownership across countries and summarizes the evidence regarding the implications of bank ownership structure for bank performance and competition, financial stability, and access to finance. The empirical evidence reviewed suggests that foreign-owned banks tend to be more efficient than domestic banks in developing countries, promote competition in host banking sectors, and help stabilize credit when host countries face idiosyncratic shocks. But there are trade-offs, since foreign-owned banks can also transmit external shocks and might not always contribute to expanding access to credit. The record on the impact of government bank ownership suggests few benefits, especially for developing countries. While government-owned banks can help stabilize credit growth during crises, they have a negative impact on competition and performance and provide no clear benefits when it comes to expanding access to credit. In contrast, government bank ownership can lead to resource misallocation, since government-owned banks are prone to engage in political lending.

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Randall Morck and Bernard Yeung

Japan, an isolated, backward country in the 1860s, industrialized rapidly to become a major industrial power by the 1930s. South Korea, among the world’s poorest countries in the 1960s, joined the ranks of First World economies in little over a single generation. China now seems poised to follow a similar trajectory. All three cases highlight the importance of marginalized traditional elites, intensive early investment in education, a degree of economic openness, free markets, equity financing, early-stage coordination of firms in diverse industries via arrangements such as business groups, and political institutions capable of curbing the power of families grown wealthy in early-stage rapid development to make way for prosperity sustained by efficient resource allocation to high-productivity firms.

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Thomas Lambert and Paolo Volpin

This chapter surveys the literature on the political economy of finance. This field offers three main insights. First, it highlights the importance of the role of political institutions in financial development. Second, it shows how the distribution of political power in society drives the prevailing set of contracting institutions and affects capital allocation and access to finance in developed and developing economies. Third, it argues that recognizing the endogenous nature of political institutions is crucial for our understanding of the evolution and functioning of financial systems.

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Alexander Popov

This chapter reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important qualifications of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The chapter highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth.

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Hans-Joachim Voth

England's financial revolution in the eighteenth century has long been hailed as a key contributor to the world's first Industrial Revolution. Later, in the nineteenth century, roles change in standard narratives – finance turns from hero into villain, with Victorian economic “failure” a result of excessive financial development. This survey argues for the exact opposite. England's financial revolution was strictly limited to public finance, enabling an explosion of public borrowing that stifled economic activity in the century up to 1815. It was only afterwards that finance began to fulfill its promise, enabling the country's rise to become the undisputed workshop of the world by the 1850s. Finally, there is no evidence of Victorian failure through excessive capital exports. In sum, the English case eloquently demonstrates the risks of financial repression – and the vast benefits from repealing outdated rules and regulations.

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Allen N. Berger and Raluca A. Roman

Is finance an important driver for the development and growth of the real economy in the United States or is it rather a negative rent-seeking force that impedes growth and prosperity? Most academics believe that finance boosts the economy, while society often has a very different view. This chapter reviews the academic research on the issue, contributes to the debate, and demonstrates that for the most part, at the margin, finance has a positive effect on the US economy. In most but not all cases, exogenous or instrumentable events demonstrate that private debt, public debt, private equity, and public equity contribute favorably to real economic outcomes in the United States. The evidence also suggests some conclusions about regulation and provides some future research avenues.

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Levine Aghion, Peter Howitt and Ross Levine