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:: Financial economics 2 ::

Financial economics 2

Translated by: Mahdi Taqavi, Azam Ahmadiyan, Neda Bayat

Published by: Ketabkhaneh Farvardin

The importance of financial markets development in economics is among the key issues in economy of development. The possibility and different contexts of investment have been formed with the development of financial markets and private sector is able to select types of strategies tailored to its needs for saving in terms of lower risk. Also, it can increase economic growth by equipping resources obtained from fund savers and directing them into profitable economic activities with high added value. Therefore, according to the importance of financial markets issue, it has been tried in this book to investigate the effect of financial liberalization and financial repression on different economic macro indicators by using different articles. Here is a summary of some of the articles:

The impact of change in interest rate on saving, investment and economic growth as one of the important issue in development economy has been referred in “saving behavior in low income and middle income developing countries: a comparison” written by Masao Ogaki, Jonathan Oster and Carmen Reinhart. There is little consensus in experiences regarding interest rate and savings rate and their interaction. Some of these experiences have been referred in this research and finally the researchers want to explore the relationship between interest rate and savings rate in a model format. A major part of the relationship between saving rate and real interest rate can be explained systematically. Experiences strongly confirm that the sensitivity of saving rate compared to interest rate changes is an increasing function of revenue.

In the “Financing and growth in bank-based economy: Is it quality or quantity that matters?” article written by Michel Kotter and Michel Wedow has been explained that most studies have used financial systems size instead of intermediation quality for explaining differences in economic growth. This article is a criterion for banks’ intermediation quality using special type of bank’s efficiency and focusing on special economic zone like Germany and this criterion has a positive effect on growth.

“Funding growth in bank-based and market-based financial systems: evidence from firm-level data” has been written by Demirguc-Kunt, Asl Maksimovic, Vojislav. The authors investigate whether firms’ access to external financing, to fund growth differs between market-based, and bank-based financial systems. Using firm-level data for forty countries, they compute the proportion of firms in each country that relies on external finance, and examine how that proportion differs across financial systems. They find that the development of a country's legal system predicts access to external finance, and that stock markets, and the banking system have different effects on access to external markets. The development of securities markets is related more to the availability of long-term financing, whereas the development of the banking sector is related more to the availability of short-term financing. They find no evidence, however, that firms’ access to external financing is predicted by an index of the development of stock markets, relative to the development of the banking system.

“Financial liberalization in developing countries: experimental failures and theoretical responses” has been written by Mazooz Mokhtar and Enayat Fatemeh. Many developing countries tested some of the financial liberalization policies during 1970 to 1980. Governments like Argentina, Chile and Uruguay released interest rates, decreased foreign investment and abolished credit management plans. On the other hand, they privatized commercial banks, facilitated the entry of different national and foreign banks into domestic bank networks, but the results were against the expectations. These countries were in a state of financial instability both in the financial sector and in the non-financial sector.

“Internal finance and growth: micro econometrics Evidence on Chinese Firms” is an article written by Alessandra Guariglia, Xiaoxuan Liu, Lina Song. The effect of liquidity constraints on the growth of firms’ property is investigated by using more than 79000 Chinese firms during 2000 to 2007. Findings show that governmental property does not affect growth of properties. Despite domestic financing growth, necessity of liquidity constraint creates obstacles for the growth of private sector, particularly in coastal areas. Due to high efficiency of these firms, if liquidity is directed to them, they can develop very quickly.

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