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Norman Loayza June 2011

Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt , E. Feyen , and R. Levine. Norman Loayza June 2011. The contribution. In previous study, financial structure NOT relevant for growth … for the average country. The contribution. In previous study,

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Norman Loayza June 2011

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  1. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011

  2. The contribution • In previous study, • financial structure NOT relevant for growth … for the average country

  3. The contribution • In previous study, • financial structure is NOT relevant for growth … for the average country • In this study, • financial structure IS related with “economic activity” BUT differently for different levels of GDP per capita • financial structure GAP does matter, even controlling for banking and stock market

  4. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development

  5. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development

  6. Comment 1: Endogeneity 1. Banks and stock markets lead to increase in GDP per capita … at different rates for different levels of development 2. Economic development pushes the rise of banks and stock markets … at different rates for different levels of development • Both are sensible… yet “sensitivity” analysis denotes causation in the first sense

  7. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries

  8. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the regression fit of the financial structure ratio be better for richer countries

  9. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the fit of the financial structure ratio be better for richer countries • Then, by construction, the FS gap is linked to GDP per capita

  10. Comment 2: Financial Structure Gap • The gap is estimated using OECD countries • It is only natural, then, that the fit of the financial structure ratio be better for richer countries • Then, by construction, the FS gap is linked to GDP per capita • Need to use criteria other than income for choosing the sample to derive optimal financial structure

  11. Question 1 • Why not growth? • “Economic activity” in the paper is represented by GDP per capita levels • In previous work, it had been the growth rate of GDP per capita • When using conditioning set, GDP per capita in 1980 is used as regressor. Still…

  12. Question 2 • In the quantile regressions, why including only one regressor? • Both Private credit and Stock market value in the (first set of ) quantile regressions for GDP per capita

  13. Comments on “Optimal Financial Structures and Development” by A. Demirguc-Kunt, E. Feyen, and R. Levine Norman Loayza June 2011

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