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Rethinking Financial Deepening
Report

Rethinking Financial Deepening

Stability and Growth in Emerging Markets

Ratna Sahay, Martin Čihák, Papa N’Diaye, Adolfo Barajas, Ran Bi, Diana Ayala, Yuan Gao, Annette Kyobe, Lam Nguyen, Christian Saborowski, Katsiaryna Svirydzenka and Seyed Reza Yousefi
IMF, 2015
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Editorial Rating

8

Qualities

  • Comprehensive
  • Analytical
  • Innovative

Recommendation

Generally, the development of a country’s financial system is a positive that helps grow its economy, promote savings and improve fiscal flexibility. But as the 2008 financial crisis illustrated, unfettered growth and lack of supervision can have negative consequences with global impacts. This erudite report from economists and researchers at the International Monetary Fund points out that the costs of financial development for emerging markets might outweigh its benefits. getAbstract recommends this astute analysis to economists, investors and financial professionals.

Take-Aways

  • Financial development (FD), an important gauge of a country’s economic progress, refers to growth in an array of financial institutions, as well as in capital markets.
  • In emerging economies, FD – which assesses a financial system’s “depth, access and efficiency” – still lags that of advanced economies.
  • While FD and economic growth are positively correlated, once FD reaches a certain threshold, it contributes less and less to progress and stability, until, eventually, the costs of such development outweigh the benefits.

About the Authors

Ratna Sahay et al. are economists and researchers at the International Monetary Fund.

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