Financial Development : Structure and Dynamics

This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition....

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Main Authors:	de la Torre, Augusto, Feyen, Erik, Ize, Alain
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ADVERSE SELECTION ARBITRAGE ASSET MANAGERS ASSETS RATIO ASYMMETRIC INFORMATION BANK ASSETS BANK BRANCH BANK CREDIT BANK DEBT BANK DEPOSIT BANK DEPOSITS BANK MARGINS BANK POLICY BENCHMARK BENCHMARKING BENCHMARKS BILLS OF EXCHANGE BORROWER BOUNDED RATIONALITY BROKERS CAPITAL ADEQUACY CAPITAL MARKETS CAPITALIZATION CENTRAL BANK CENTRAL BANKS CHECKING ACCOUNTS COLLECTIVE ACTION COMMERCIAL BANKS CONSUMERS CONTRACT ENFORCEMENT COORDINATION FAILURES CORPORATE BONDS CORPORATE GOVERNANCE CREDIT BUREAUS CREDIT CARD CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT GROWTH CREDIT INFORMATION CREDIT MARKETS CREDITOR CREDITOR RIGHTS CURRENCY MISMATCHES CUSTODY DEBT SECURITIES DEFAULT RISK DEPOSIT DEPOSIT SERVICES DEPOSITS DEREGULATION DERIVATIVE DERIVATIVE MARKETS DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT PATHS DEVELOPMENT POLICIES DEVELOPMENT POLICY DISCLOSURE STANDARDS DISEQUILIBRIUM DIVERSIFICATION BENEFITS DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC EQUITIES DOMESTIC EQUITY ECONOMETRIC ANALYSIS ECONOMIC DEVELOPMENT ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC RENT ECONOMIC RESEARCH EMERGING ECONOMIES EMERGING ECONOMY ENABLING ENVIRONMENT EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY SECURITIES EXPECTED VALUES EXPORTER EXPOSURE EXTERNAL DEBT EXTERNAL FINANCE FEE INCOME FINANCIAL CONTRACT FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INFRASTRUCTURE FINANCIAL INNOVATION FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICE FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FINANCIAL VOLATILITY FIXED COSTS FOREIGN CURRENCY FREE RIDING PROBLEMS FUND MANAGERS GDP GDP PER CAPITA GLOBALIZATION GOVERNMENT BOND GOVERNMENT BOND MARKET GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT DEBT MARKETS GOVERNMENT GUARANTEES HEDGE FUNDS HEDGES INCOME GROWTH INCOME LEVEL INCOME LEVELS INCREASING RETURNS INCREASING RETURNS TO SCALE INFORMATION ASYMMETRY INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE PREMIUM INSURANCE PREMIUMS INTEREST INCOME INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKS LACK OF COLLATERAL LEGAL RIGHTS LIFE INSURANCE LIMITED LIABILITY LIQUID ASSETS LIQUIDITY LOANABLE FUNDS MACROECONOMIC POLICY MACROECONOMICS MARGINAL BENEFITS MARGINAL COSTS MARKET ANALYSTS MARKET DEBT MARKET FAILURES MARKET INSTRUMENTS MARKET LIQUIDITY MARKET MECHANISM MARKET PARTICIPANTS MARKET RETURN MARKET SIZE MARKET TURNOVER MARKETABLE ASSETS MIDDLE INCOME COUNTRIES MONETARY POLICY MORAL HAZARD MORTGAGE MUTUAL FUND MUTUAL FUND ASSETS MUTUAL FUNDS NEGATIVE EXTERNALITIES NETWORK EXTERNALITIES OFFSHORE CENTER OFFSHORE FINANCIAL CENTER OPEN ECONOMIES OUTPUT PAYMENT SERVICES PENSION PENSION FUND PENSION FUND ASSETS PENSION FUNDS PENSION REFORMS PER CAPITA INCOME POLICY RESPONSE POLITICAL ECONOMY PORTFOLIO POSITIVE EXTERNALITIES PRIVATE CREDIT PRIVATE DEBT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEBT SECURITIES PUBLIC GOOD REPO RESERVE RETAIL INVESTORS RETURNS RETURNS TO SCALE RISK DIVERSIFICATION RISK PROFILES RULE OF LAW SCALE EFFECTS SECURITIES MARKETS SOLVENCY STOCK EXCHANGES STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS STOCK TRADING STOCKS TAX TAXATION TRADING TRADING PLATFORM TRANSACTION TRANSACTION COSTS TRANSITION COUNTRY UNDERLYING PROBLEM USE OF COLLATERAL VALUE ADDED VALUE OF COLLATERAL WEALTH
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111024134059 http://hdl.handle.net/10986/3620

id	okr-10986-3620
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCOUNTING ADVERSE SELECTION ARBITRAGE ASSET MANAGERS ASSETS RATIO ASYMMETRIC INFORMATION BANK ASSETS BANK BRANCH BANK CREDIT BANK DEBT BANK DEPOSIT BANK DEPOSITS BANK MARGINS BANK POLICY BENCHMARK BENCHMARKING BENCHMARKS BILLS OF EXCHANGE BORROWER BOUNDED RATIONALITY BROKERS CAPITAL ADEQUACY CAPITAL MARKETS CAPITALIZATION CENTRAL BANK CENTRAL BANKS CHECKING ACCOUNTS COLLECTIVE ACTION COMMERCIAL BANKS CONSUMERS CONTRACT ENFORCEMENT COORDINATION FAILURES CORPORATE BONDS CORPORATE GOVERNANCE CREDIT BUREAUS CREDIT CARD CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT GROWTH CREDIT INFORMATION CREDIT MARKETS CREDITOR CREDITOR RIGHTS CURRENCY MISMATCHES CUSTODY DEBT SECURITIES DEFAULT RISK DEPOSIT DEPOSIT SERVICES DEPOSITS DEREGULATION DERIVATIVE DERIVATIVE MARKETS DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT PATHS DEVELOPMENT POLICIES DEVELOPMENT POLICY DISCLOSURE STANDARDS DISEQUILIBRIUM DIVERSIFICATION BENEFITS DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC EQUITIES DOMESTIC EQUITY ECONOMETRIC ANALYSIS ECONOMIC DEVELOPMENT ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC RENT ECONOMIC RESEARCH EMERGING ECONOMIES EMERGING ECONOMY ENABLING ENVIRONMENT EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY SECURITIES EXPECTED VALUES EXPORTER EXPOSURE EXTERNAL DEBT EXTERNAL FINANCE FEE INCOME FINANCIAL CONTRACT FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INFRASTRUCTURE FINANCIAL INNOVATION FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICE FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FINANCIAL VOLATILITY FIXED COSTS FOREIGN CURRENCY FREE RIDING PROBLEMS FUND MANAGERS GDP GDP PER CAPITA GLOBALIZATION GOVERNMENT BOND GOVERNMENT BOND MARKET GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT DEBT MARKETS GOVERNMENT GUARANTEES HEDGE FUNDS HEDGES INCOME GROWTH INCOME LEVEL INCOME LEVELS INCREASING RETURNS INCREASING RETURNS TO SCALE INFORMATION ASYMMETRY INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE PREMIUM INSURANCE PREMIUMS INTEREST INCOME INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKS LACK OF COLLATERAL LEGAL RIGHTS LIFE INSURANCE LIMITED LIABILITY LIQUID ASSETS LIQUIDITY LOANABLE FUNDS MACROECONOMIC POLICY MACROECONOMICS MARGINAL BENEFITS MARGINAL COSTS MARKET ANALYSTS MARKET DEBT MARKET FAILURES MARKET INSTRUMENTS MARKET LIQUIDITY MARKET MECHANISM MARKET PARTICIPANTS MARKET RETURN MARKET SIZE MARKET TURNOVER MARKETABLE ASSETS MIDDLE INCOME COUNTRIES MONETARY POLICY MORAL HAZARD MORTGAGE MUTUAL FUND MUTUAL FUND ASSETS MUTUAL FUNDS NEGATIVE EXTERNALITIES NETWORK EXTERNALITIES OFFSHORE CENTER OFFSHORE FINANCIAL CENTER OPEN ECONOMIES OUTPUT PAYMENT SERVICES PENSION PENSION FUND PENSION FUND ASSETS PENSION FUNDS PENSION REFORMS PER CAPITA INCOME POLICY RESPONSE POLITICAL ECONOMY PORTFOLIO POSITIVE EXTERNALITIES PRIVATE CREDIT PRIVATE DEBT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEBT SECURITIES PUBLIC GOOD REPO RESERVE RETAIL INVESTORS RETURNS RETURNS TO SCALE RISK DIVERSIFICATION RISK PROFILES RULE OF LAW SCALE EFFECTS SECURITIES MARKETS SOLVENCY STOCK EXCHANGES STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS STOCK TRADING STOCKS TAX TAXATION TRADING TRADING PLATFORM TRANSACTION TRANSACTION COSTS TRANSITION COUNTRY UNDERLYING PROBLEM USE OF COLLATERAL VALUE ADDED VALUE OF COLLATERAL WEALTH
spellingShingle	ACCOUNTING ADVERSE SELECTION ARBITRAGE ASSET MANAGERS ASSETS RATIO ASYMMETRIC INFORMATION BANK ASSETS BANK BRANCH BANK CREDIT BANK DEBT BANK DEPOSIT BANK DEPOSITS BANK MARGINS BANK POLICY BENCHMARK BENCHMARKING BENCHMARKS BILLS OF EXCHANGE BORROWER BOUNDED RATIONALITY BROKERS CAPITAL ADEQUACY CAPITAL MARKETS CAPITALIZATION CENTRAL BANK CENTRAL BANKS CHECKING ACCOUNTS COLLECTIVE ACTION COMMERCIAL BANKS CONSUMERS CONTRACT ENFORCEMENT COORDINATION FAILURES CORPORATE BONDS CORPORATE GOVERNANCE CREDIT BUREAUS CREDIT CARD CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT GROWTH CREDIT INFORMATION CREDIT MARKETS CREDITOR CREDITOR RIGHTS CURRENCY MISMATCHES CUSTODY DEBT SECURITIES DEFAULT RISK DEPOSIT DEPOSIT SERVICES DEPOSITS DEREGULATION DERIVATIVE DERIVATIVE MARKETS DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT PATHS DEVELOPMENT POLICIES DEVELOPMENT POLICY DISCLOSURE STANDARDS DISEQUILIBRIUM DIVERSIFICATION BENEFITS DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC EQUITIES DOMESTIC EQUITY ECONOMETRIC ANALYSIS ECONOMIC DEVELOPMENT ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC RENT ECONOMIC RESEARCH EMERGING ECONOMIES EMERGING ECONOMY ENABLING ENVIRONMENT EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY SECURITIES EXPECTED VALUES EXPORTER EXPOSURE EXTERNAL DEBT EXTERNAL FINANCE FEE INCOME FINANCIAL CONTRACT FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INFRASTRUCTURE FINANCIAL INNOVATION FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICE FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FINANCIAL VOLATILITY FIXED COSTS FOREIGN CURRENCY FREE RIDING PROBLEMS FUND MANAGERS GDP GDP PER CAPITA GLOBALIZATION GOVERNMENT BOND GOVERNMENT BOND MARKET GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT DEBT MARKETS GOVERNMENT GUARANTEES HEDGE FUNDS HEDGES INCOME GROWTH INCOME LEVEL INCOME LEVELS INCREASING RETURNS INCREASING RETURNS TO SCALE INFORMATION ASYMMETRY INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE PREMIUM INSURANCE PREMIUMS INTEREST INCOME INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKS LACK OF COLLATERAL LEGAL RIGHTS LIFE INSURANCE LIMITED LIABILITY LIQUID ASSETS LIQUIDITY LOANABLE FUNDS MACROECONOMIC POLICY MACROECONOMICS MARGINAL BENEFITS MARGINAL COSTS MARKET ANALYSTS MARKET DEBT MARKET FAILURES MARKET INSTRUMENTS MARKET LIQUIDITY MARKET MECHANISM MARKET PARTICIPANTS MARKET RETURN MARKET SIZE MARKET TURNOVER MARKETABLE ASSETS MIDDLE INCOME COUNTRIES MONETARY POLICY MORAL HAZARD MORTGAGE MUTUAL FUND MUTUAL FUND ASSETS MUTUAL FUNDS NEGATIVE EXTERNALITIES NETWORK EXTERNALITIES OFFSHORE CENTER OFFSHORE FINANCIAL CENTER OPEN ECONOMIES OUTPUT PAYMENT SERVICES PENSION PENSION FUND PENSION FUND ASSETS PENSION FUNDS PENSION REFORMS PER CAPITA INCOME POLICY RESPONSE POLITICAL ECONOMY PORTFOLIO POSITIVE EXTERNALITIES PRIVATE CREDIT PRIVATE DEBT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEBT SECURITIES PUBLIC GOOD REPO RESERVE RETAIL INVESTORS RETURNS RETURNS TO SCALE RISK DIVERSIFICATION RISK PROFILES RULE OF LAW SCALE EFFECTS SECURITIES MARKETS SOLVENCY STOCK EXCHANGES STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS STOCK TRADING STOCKS TAX TAXATION TRADING TRADING PLATFORM TRANSACTION TRANSACTION COSTS TRANSITION COUNTRY UNDERLYING PROBLEM USE OF COLLATERAL VALUE ADDED VALUE OF COLLATERAL WEALTH de la Torre, Augusto Feyen, Erik Ize, Alain Financial Development : Structure and Dynamics
geographic_facet	The World Region The World Region
relation	Policy Research working paper ; no. WPS 5854
description	This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts of market participants to grind down or circumvent these frictions, a process further spurred by financial innovation and scale and network effects. The analysis leads to broad predictions regarding the sequencing and convexity of the dynamic paths for a battery of financial development indicators. The method used also yields a robust way to benchmark the financial development paths followed by individual countries or regions. The paper explores the reasons for path deviations and gaps relative to the benchmark. Demand-related effects (past output growth), financial crashes, and supply-related effects (the quality of the enabling environment) all play an important role. Informational frictions are easier to overcome than contractual frictions, not least because of the transferability of financial innovation across borders.
format	Publications & Research :: Policy Research Working Paper
author	de la Torre, Augusto Feyen, Erik Ize, Alain
author_facet	de la Torre, Augusto Feyen, Erik Ize, Alain
author_sort	de la Torre, Augusto
title	Financial Development : Structure and Dynamics
title_short	Financial Development : Structure and Dynamics
title_full	Financial Development : Structure and Dynamics
title_fullStr	Financial Development : Structure and Dynamics
title_full_unstemmed	Financial Development : Structure and Dynamics
title_sort	financial development : structure and dynamics
publishDate	2012
url	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111024134059 http://hdl.handle.net/10986/3620
_version_	1764387475930742784
spelling	okr-10986-36202021-04-23T14:02:11Z Financial Development : Structure and Dynamics de la Torre, Augusto Feyen, Erik Ize, Alain ACCOUNTING ADVERSE SELECTION ARBITRAGE ASSET MANAGERS ASSETS RATIO ASYMMETRIC INFORMATION BANK ASSETS BANK BRANCH BANK CREDIT BANK DEBT BANK DEPOSIT BANK DEPOSITS BANK MARGINS BANK POLICY BENCHMARK BENCHMARKING BENCHMARKS BILLS OF EXCHANGE BORROWER BOUNDED RATIONALITY BROKERS CAPITAL ADEQUACY CAPITAL MARKETS CAPITALIZATION CENTRAL BANK CENTRAL BANKS CHECKING ACCOUNTS COLLECTIVE ACTION COMMERCIAL BANKS CONSUMERS CONTRACT ENFORCEMENT COORDINATION FAILURES CORPORATE BONDS CORPORATE GOVERNANCE CREDIT BUREAUS CREDIT CARD CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT GROWTH CREDIT INFORMATION CREDIT MARKETS CREDITOR CREDITOR RIGHTS CURRENCY MISMATCHES CUSTODY DEBT SECURITIES DEFAULT RISK DEPOSIT DEPOSIT SERVICES DEPOSITS DEREGULATION DERIVATIVE DERIVATIVE MARKETS DERIVATIVE PRODUCTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT PATHS DEVELOPMENT POLICIES DEVELOPMENT POLICY DISCLOSURE STANDARDS DISEQUILIBRIUM DIVERSIFICATION BENEFITS DOMESTIC CURRENCY DOMESTIC DEBT DOMESTIC EQUITIES DOMESTIC EQUITY ECONOMETRIC ANALYSIS ECONOMIC DEVELOPMENT ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC RENT ECONOMIC RESEARCH EMERGING ECONOMIES EMERGING ECONOMY ENABLING ENVIRONMENT EQUITY MARKET EQUITY MARKET CAPITALIZATION EQUITY MARKETS EQUITY SECURITIES EXPECTED VALUES EXPORTER EXPOSURE EXTERNAL DEBT EXTERNAL FINANCE FEE INCOME FINANCIAL CONTRACT FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL HISTORY FINANCIAL INFRASTRUCTURE FINANCIAL INNOVATION FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICE FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FINANCIAL VOLATILITY FIXED COSTS FOREIGN CURRENCY FREE RIDING PROBLEMS FUND MANAGERS GDP GDP PER CAPITA GLOBALIZATION GOVERNMENT BOND GOVERNMENT BOND MARKET GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT DEBT MARKETS GOVERNMENT GUARANTEES HEDGE FUNDS HEDGES INCOME GROWTH INCOME LEVEL INCOME LEVELS INCREASING RETURNS INCREASING RETURNS TO SCALE INFORMATION ASYMMETRY INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE PREMIUM INSURANCE PREMIUMS INTEREST INCOME INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKS LACK OF COLLATERAL LEGAL RIGHTS LIFE INSURANCE LIMITED LIABILITY LIQUID ASSETS LIQUIDITY LOANABLE FUNDS MACROECONOMIC POLICY MACROECONOMICS MARGINAL BENEFITS MARGINAL COSTS MARKET ANALYSTS MARKET DEBT MARKET FAILURES MARKET INSTRUMENTS MARKET LIQUIDITY MARKET MECHANISM MARKET PARTICIPANTS MARKET RETURN MARKET SIZE MARKET TURNOVER MARKETABLE ASSETS MIDDLE INCOME COUNTRIES MONETARY POLICY MORAL HAZARD MORTGAGE MUTUAL FUND MUTUAL FUND ASSETS MUTUAL FUNDS NEGATIVE EXTERNALITIES NETWORK EXTERNALITIES OFFSHORE CENTER OFFSHORE FINANCIAL CENTER OPEN ECONOMIES OUTPUT PAYMENT SERVICES PENSION PENSION FUND PENSION FUND ASSETS PENSION FUNDS PENSION REFORMS PER CAPITA INCOME POLICY RESPONSE POLITICAL ECONOMY PORTFOLIO POSITIVE EXTERNALITIES PRIVATE CREDIT PRIVATE DEBT PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEBT SECURITIES PUBLIC GOOD REPO RESERVE RETAIL INVESTORS RETURNS RETURNS TO SCALE RISK DIVERSIFICATION RISK PROFILES RULE OF LAW SCALE EFFECTS SECURITIES MARKETS SOLVENCY STOCK EXCHANGES STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS STOCK TRADING STOCKS TAX TAXATION TRADING TRADING PLATFORM TRANSACTION TRANSACTION COSTS TRANSITION COUNTRY UNDERLYING PROBLEM USE OF COLLATERAL VALUE ADDED VALUE OF COLLATERAL WEALTH This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts of market participants to grind down or circumvent these frictions, a process further spurred by financial innovation and scale and network effects. The analysis leads to broad predictions regarding the sequencing and convexity of the dynamic paths for a battery of financial development indicators. The method used also yields a robust way to benchmark the financial development paths followed by individual countries or regions. The paper explores the reasons for path deviations and gaps relative to the benchmark. Demand-related effects (past output growth), financial crashes, and supply-related effects (the quality of the enabling environment) all play an important role. Informational frictions are easier to overcome than contractual frictions, not least because of the transferability of financial innovation across borders. 2012-03-19T18:05:42Z 2012-03-19T18:05:42Z 2011-10-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111024134059 http://hdl.handle.net/10986/3620 English Policy Research working paper ; no. WPS 5854 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region

Financial Development : Structure and Dynamics

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