May the Soul of the IFS Financial System Definition RIP in Developing Countries

African Governance and Development Institute Working Paper No. 21/14

24 Pages Posted: 23 Nov 2014

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Date Written: January 22, 2014

Abstract

In this paper, we dissect with great acuteness contemporary insufficiencies of the IFS (2008) definition of the financial system and conclude from sound theoretical underpinnings and empirical justifications that the foundation, on which it is based, while solid for developed countries, holds less ground in developing countries. Perhaps one of the deepest empirical hollows in the financial development literature has been the equation of financial depth in the perspective of money supply to liquid liabilities. This equation has put on the margin (and skewed) burgeoning phenomena of mobile banking, knowledge economy (KE), inequality…etc. We conclude that the informal financial sector, a previously missing component in the IFS conception and definition of the financial system can only be marginalized at the cost of misunderstanding recent burgeoning trends in mobile phone penetration, KE and poverty. Hence, the IFS definition has incontrovertibly fought its final dead battle and lost in the face of soaring trends highlighted above. Despite the plethora of econometric and policy-making sins the definition has committed in developing countries through bias estimates and misleading inferences, may its soul RIP.

Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Poverty

JEL Classification: E00; G20; I30; O17; O33

Suggested Citation

Asongu, Simplice, May the Soul of the IFS Financial System Definition RIP in Developing Countries (January 22, 2014). African Governance and Development Institute Working Paper No. 21/14. Available at SSRN: https://ssrn.com/abstract=2529444 or http://dx.doi.org/10.2139/ssrn.2529444

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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