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Essays in Financial Development and Economic Growth

  • Author(s): Bun, Linh
  • Advisor(s): Singh, Nirvikar
  • Aizenman, Joshua
  • et al.
Abstract

Chapter 1 (Part I): Financial Development and Growth: Multi-dimensional View analyze the effects of "financial development" on economic growth using a multi-dimensional view. Existing literature uses a single dimension, financial depth, as measure of financial development. Our approach is to consider a multi-dimensional view of financial development and to take in to account other dimensions of financial development. We categorize financial development (financial institutions and markets) along three dimension: financial depth, access and efficiency. We find that for the country sample analyzed, financial institutions depth and efficiency are compliment.

Chapter 2 (Part I): Heterogeneous Patterns of Financial Development: Implications for Asian Financial Integration studies detailed differences in patterns of financial development across the major Asian economies, including three of the region’s largest economies (China, Japan and South Korea), to understand how these differences might affect possibilities for greater regional financial integration. In particular, the paper argues that heterogeneous patterns of financial development, and not just differences in levels of financial development, may present an economic challenge to regional financial integration efforts, aside from possible political challenges. The paper provides background on the case for financial openness, Asian experiences with financial integration, and regional economic responses to external shocks. It also discusses policy options, including regulatory reform and coordination, and possible risk management policies and institutions, in the context of heterogeneous patterns of financial development.

Chapter 3 (Part II): Structural Changes and Labor Market Frictions analyzes a calibrated three-sector (agriculture, manufacturing and services) endogenous growth model with learning-by-doing to study the process of structural transformation in emerging and developing economies. We introduced a calibrated three-sector endogenous growth model with sectoral labor adjustment costs. The model generates a hump-shaped in manufacturing employment share. We introduce a key feature of leaning-by-doing in manufacturing sector to a standard three-sector structural transformation model with labor market friction, which is new to the literature. Labor market friction plays an important role in generating a novel feature of structural changes, humped-shaped in manufacturing employment. In our model, opening to trade can accelerate or decrease structural transformation (labor movement into the manufacturing sector) depending on comparative advantage, whether the economy specializes in agriculture or non-agriculture goods after opening to trade. The calibrated model with labor market friction generated the hump-shaped labor share in manufacturing for South Korea.

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