Competition, Trends and Policy Issues
Edited by Peter Johnson
Chapter 11: Financial services
11. Financial services Gioia Pescetto INTRODUCTION The key role of a country’s ﬁnancial sector, and particularly banking sector, in its economic development has been recognised in the literature for a very long time (Schumpeter 1911). In the development of a market economy, the ﬁnancial sector acts as a main vehicle for mobilising savings and allocating them to investments, as well as oﬀering instruments for managing and/or sharing risk (Corbett 1990; Porter 1992). Therefore, eﬃcient ﬁnancial services are essential for eﬀective economic ﬂows. In recent years, studies have looked at the links between ﬁnancial systems and economic growth paying particular attention to the direction of causation and the role of ﬁnancial markets (King and Levine 1992; Pagano 1993; Levine and Zervos 1998; Rajan and Zingales 1998; Beck et al. 2000; Levine et al. 2000). These studies suggest that the design of the ﬁnancial system may inﬂuence real activity and economic development. However, the many diﬀerent structural dimensions of a ﬁnancial system are diﬃcult to capture in simple quantitative measures and thus the quest for benchmark measures of ﬁnancial system development and its determinants still goes on (Berger et al. 1995; Jaﬀee and Levonian 2001). The compilation of a satisfactory measure of ﬁnancial activity is made particularly diﬃcult by the profound and discontinuous changes that have characterised the development of international ﬁnancial markets in the last two decades of the twentieth century. This state of ﬂux can be attributed to increased economic instability and...
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