Financial Sector Competition and Knowledge Economy: Evidence from SSA and MENA Countries

The goal of this paper is to assess how financial sector competition plays out in the development of knowledge economy (KE). It contributes at the same time to the macroeconomic literature on measuring financial development and response to the growing field of KE by means of informal sector promotion, micro finance and mobile banking. It suggests a practicable way to disentangle the effects of various financial sectors on different components of KE. The variables identified under the World Bank’s four knowledge economy index (KEI) are employed. Three hypotheses based on seven propositions are tested. Results show: (1) the informal financial sector, a previously missing component in the definition of the financial system by the IMF significantly affects KE dimensions; (2) disentangling different components of the existing measurement of the financial system improves dynamics in the KE-finance nexus and; (3) introduction of measures of sector importance provides relevant new insights into how financial sector competition affects KE

Finance and Growth: What we Know and What we Need to Know

In modern economies finance underpins virtually every economic transaction that takes place. When we go to the supermarket, we usually pay using credit or debit cards issued by commercial banks (or the supermarkets themselves). Even when we pay using cash, we have to first find an ATM in order to withdraw the necessary bank notes. The banking system, which includes commercial banks as well as the central bank (the Bank of England in the UK), provides the payments system which makes economic exchange possible. It is hard to imagine what economies would look like without ‘money’–broadly defined as anything that is used in exchange for goods and services and the settlement of debt. Besides providing the means of payment, which underpins all economic transactions, the financial system provides a link between current and future output and consumption. When we borrow from a bank to buy a car, we are essentially bringing forward consumption against future income. This is made possible because financial intermediaries, like banks, raise funds from surplus units (those economic agents whose income is greater than their current expenditure) and pass them on as loans to deficit units (those economi

Is the finance led growth hypothesis robust to alternative measures of financial development?

In this article we employ tests of noncausation to measure the impact of financial development on 34 developing countries experiencing vastly different stages of economic development and covering annual observations over the period 1960-2009 for most countries. Focusing on the dual role of financial development and economic growth as proposed in much of the endogenous growth literature, we draw upon individual country evidence from 34 developing countries at alternative stages of economic development. Our contribution to the literature lies in our use of several tests based on multiple measures selected to represent financial development. Testing each one separately, we come up with varying patterns of correlation between finance and growth for individual countries. The variation or consistency of each measure as an influence on economic growth is both telling for policy and the determination of future patterns of growth for emerging market economies.