Financial Infrastructure, Group Interests, and Capital Accumulation: Theory, Evidence, and Policy

35 Pages Posted: 28 Jan 2006

See all articles by Biagio Bossone

Biagio Bossone

BRASS on Finance, Ltd; The Group of Lecce

Sandeep Mahajan

affiliation not provided to SSRN

Farah Zahir

World Bank

Date Written: January 2003

Abstract

This study presents a theory of financial infrastructure - or the set of rules, institutions, and systems within which agents carry out financial transactions. It investigates the effects of financial infrastructure development on financial architecture and real capital accumulation, taking into account financial-sector special interests. It shows that a more developed infrastructure promotes financial market growth, reduces the scope of traditional banking, and helps investors make more efficient investment decisions. The theory presented explains why traditional banking predominates in the early stages of economic development and becomes relatively less important as the economy develops, and why banks may retard financial sector development. The study provides evidence in support of its predictions.

Keywords: Banks, Nonbank financial intermediation, Financial infrastructure, Group interest, Information, Knowledge, Transaction costs

JEL Classification: G1, G2, O16

Suggested Citation

Bossone, Biagio and Mahajan, Sandeep and Zahir, Farah, Financial Infrastructure, Group Interests, and Capital Accumulation: Theory, Evidence, and Policy (January 2003). IMF Working Paper No. 03/24, Available at SSRN: https://ssrn.com/abstract=879099

Biagio Bossone (Contact Author)

BRASS on Finance, Ltd ( email )

B2, Industry St.
Qormi, 3000
Malta

The Group of Lecce ( email )

Lecce
Lecce, 73100
Italy

Sandeep Mahajan

affiliation not provided to SSRN

No Address Available

Farah Zahir

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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