This document discusses the importance of human capital development for the financial sector and economic growth in developing countries. It argues that while financial liberalization is important, it is not sufficient on its own and can even be counterproductive without stable domestic banks. Strengthening human capital in the financial sector through appropriate academic training and on-the-job skills is crucial for developing robust banks that can effectively allocate capital. However, many developing countries face shortages of professionals with the necessary skills. Public-private partnerships are proposed as an effective approach for developing comprehensive policies to strengthen human capital in the financial sector.
Non-monetary effects Employee performance during Financial Crises in the Kurd...AI Publications
The crisis of 2014-2018 has focused attention on money and credit fluctuations, financial crises, and policy responses. The main aim of this research was to examine the non-monetary factors affecting employee performance in Kurdistan region of Iraq as general and Erbil as particular. However, the researcher developed five research hypotheses to be tested and measured to evaluate employee performance during financial crises. The researcher implemented simple regression analysis to measure the developed research hypotheses, it was found that the highest value was for job security, this indicates the job security has the most powerful and positive association with employee performance during financial crisis, on the other hand the least powerful was found to be job enrichment that influences and related to employee performance during financial crisis in Kurdistan region of Iraq.
Financial crisis: Non-monetary factors influencing Employee performance at ba...AI Publications
Money and credit fluctuations, financial crises, and governmental responses have come into the spotlight as a result of the crisis that lasted from 2014 to 2018. The primary objective of this study was to investigate the non-financial elements that have an effect on employee performance in the Kurdistan region of Iraq in general and in Erbil in particular. In spite of this, the researcher came up with five assumptions about study that needed to be evaluated and quantified in order to assess how well employees performed amid financial crises. It was found that job security had the highest value, which indicates that job security has the most powerful and positive association with employee performance during financial crisis. On the other hand, job enrichment was found to be the least powerful factor that influences and is related to employee performance during financial crisis in the Kurdistan region of Iraq. The researcher used simple regression analysis to measure the developed research hypotheses.6
Non-monetary effects Employee performance during Financial Crises in the Kurd...AI Publications
The crisis of 2014-2018 has focused attention on money and credit fluctuations, financial crises, and policy responses. The main aim of this research was to examine the non-monetary factors affecting employee performance in Kurdistan region of Iraq as general and Erbil as particular. However, the researcher developed five research hypotheses to be tested and measured to evaluate employee performance during financial crises. The researcher implemented simple regression analysis to measure the developed research hypotheses, it was found that the highest value was for job security, this indicates the job security has the most powerful and positive association with employee performance during financial crisis, on the other hand the least powerful was found to be job enrichment that influences and related to employee performance during financial crisis in Kurdistan region of Iraq.
Financial crisis: Non-monetary factors influencing Employee performance at ba...AI Publications
Money and credit fluctuations, financial crises, and governmental responses have come into the spotlight as a result of the crisis that lasted from 2014 to 2018. The primary objective of this study was to investigate the non-financial elements that have an effect on employee performance in the Kurdistan region of Iraq in general and in Erbil in particular. In spite of this, the researcher came up with five assumptions about study that needed to be evaluated and quantified in order to assess how well employees performed amid financial crises. It was found that job security had the highest value, which indicates that job security has the most powerful and positive association with employee performance during financial crisis. On the other hand, job enrichment was found to be the least powerful factor that influences and is related to employee performance during financial crisis in the Kurdistan region of Iraq. The researcher used simple regression analysis to measure the developed research hypotheses.6
Transitory and Permanent Effects of Capital Market Development on Capital For...AJHSSR Journal
ABSTRACT: Recent research on the relationship between capital market development and capital formation is
inconsistent.This study investigates the effect of capital market development on capital formation, and
theempiricalmethodutilisedinthisstudy, the Mundlak method,decomposestheeffectsofcapitalmarket development
on capital formation into transitory and permanent effects. This decomposition is important in order to ascertain
whether capital market development is beneficial to short-run or long-run capital formation, which is a key
determinant of a country‟s growth level.The study investigates the capital market development-capital formation
nexus byapplyingaggregate dataset from seven countries within the Sub-Saharan African
regionnamelyGhana,Kenya,IvoryCoast,Mauritius,Nigeria,SouthAfrica,and Zimbabwe over the period from 1980
to 2021. The results indicatethat capital market development has a transitory negative impact on capital
formation,but has a permanent positive impact on capital formation. More importantly, the permanent effect
seems more robust and stronger than the transitory effect. The findings conform to conventional wisdom that
Sub-Saharan African countries with well-developed capital markets experience long-run benefits of increased
capital formation and improved economic development. Based on the research findings, we recommend that
capital market authorities of Sub-Saharan African countries should prioritise policies that will boost productivity,
liquidity, and resilience. The study further recommends that Sub-Saharan African countries must improve their
capital markets‟ infrastructures, and eliminate the tax, legal and regulatory hurdles that impede the development
of their domestic capital markets.
KEYWORDS:Capitalmarketdevelopment,capitalformation,Sub-Saharan Africa, Mundlak Methodology, Panel
data.
Interaction of islamic banking sector with indonesian economic growth for 200...An Nisbah
Abstract: This paper aims to analyze the dinamics interaction of islamic banking sector with Indonesian economic growth for 2000-2010. The methode of analyze used in this research is granger causality and Vector Error Correction Model (VECM). Besides that we use stationary test to chek wether the data have unit root or not. We use time series data of total islamic bank fnancing, fxed invesstment, trade and gross
domestic product. We found that in the short run there is evidence of
bidirectional relationship between fnancing of islamic bank, fxed
investment, trade and economi growth. Where as in the long run
there is relationship between islamic banking with economic growth
on Indonesian economy. To improve the role of islamic banking on
Indonesian economy, Bank Indonesia must push islamic banking to
expand their activity on riil sector and rural area.
Keywords: Islamic Banking sector, Financial Intermediary, Economic
Growth, Vector Error Corrrection Model
Economics and Finance Society_ A Comprehensive Exploration.pdftewhimanshu23
✔Economics and Finance Society: A Comprehensive Exploration
As we delve into the heart of this nexus, we unravel the symbiotic relationship between economics and finance society,
For more information
📕Read -https://mrbusinessmagazine.com/economics-and-finance-society-comprehensive-exploration/
And get Insights
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
A small airline recently sold to a private equity group for $145 m.docxannetnash8266
A small airline recently sold to a private equity group for $145 million. The airline has earned profits of $9 million last year. The new managers believe they can grow profits at 5% per year. The private equity group borrows money from wealthy individuals to invest in acquisitions. Because of the significant risk involved, lenders are promised a 12% return on their loans to the equity group. Is the purchase price of the new airline reasonable? Explain
ISSN 0143-6597 print/ISSN 1360-2241 online/02/040607-1 4 q 2002 Third World Quarterly
DOI: 10.1080 /014365902200000529 2 607
Third World Quarterly, Vol 23, No 4, pp 607–620, 2002
Eager to defend the feasibilit y, indeed desirability, of continued mobility of cross-
border financial flows, especially after the advent of the Asian crisis (1997–98),
the G-7 countries established a series of institutions and networks, encompassin g
both state and non-state actors, in the hope of strengthening the internationa l
financial system. This strategy has been referred to as the New Internationa l
Financial Architecture (NIFA). While there are many dimensions to the NIFA, we
can identify at least three important features: the Group of Twenty (G-20), the
Financial Stability Forum (FSF), and 11 standards and codes which are collec-
tively known as the Reports on Observances of Standards and Codes (ROSCs).
Briefly, the G-20 brings together, for the first time, finance ministers and central
bank governors not only of the G-7 and the European Union, but also their
counterparts of ‘systematically important’ emerging market economies. The FSF,
on the other hand, seeks to provide regular scheduled meetings involvi ng
important national authorities from G-7 countries in order to enhance discussion s
On the contradictions of the New
International Financial Architecture:
another procrustean bed for
emerging markets?
SUSANNE SOEDERBERG
ABSTRACT The New International Financial Architecture (NIFA) was created by
powerful G-7 countries in response to the growing volatility in the developing
world. Some key components of the NIFA include: the G-20, the Financial Stabilit y
Forum and the Reports on Observance of Standards and Codes, the latte r
involving areas such as corporate governanc e. The aim of this article is to
address some important yet largely neglected questions. Why the new building ?
Who benefits from this construct ion? Unlike most accounts of the NIFA, the
following analysis does not remain focused on its institutio nal terrain; but
instead draws linkages between these structures and the paradoxes inherent in
global capitalism. One such contradiction is the constant promotion of financia l
liberalisation in emerging markets by US-led international financial institution s
(IFIs), on the one hand, and the frequency of financial crises in the developing
world, on the other. The article suggests that the NIFA is an attempt to strengthe n
(stabilise and legitimate) the scaffolding of the existing imper.
Essay Questions Unit Exam V1. With graphs and diagrams, de.docxbridgelandying
Essay Questions Unit Exam V
1. With graphs and diagrams, describe and discuss the roll and control of all the hormones involved in a reproductively competent human female menstrual cycle. Include the following graphs Gonadotropin levels, ovarian hormone levels and the uterine cycle. Read pages 1052-1056.
2. Discuss the hormonal regulation of the testicular function. The brain –testicular axis. Read pages 1038 - 1039.
3. Discuss the process of spermatogenesis the events that occur in the seminiferous tubules. Refer to pages 1033 - 1038
CHAPTER 12
CASE STUDIES IN
FINANCIAL CRISES
L e a r n i n g o b j e c t i v e s
The relevant section of the chapter is provided in brackets beside the learning
objective.
This chapter will assist you to:
LO 1. discuss important factors that are drivers of globalisation of the international
fi nancial markets (12.1)
LO 2. examine policy, structural and management issues that may create an
environment that is conducive to an evolving fi nancial crisis, and understand
the effects and consequences of a fi nancial crisis on a fi nancial system and
a real economy (12.2)
LO 3. identify and discuss risk management issues that were causal in the failure
of Barings Bank (12.3)
LO 4. identify the underlying fi nancial system weaknesses that became the precursor
to the Asian fi nancial crisis, and explain the interrelationships of fi nancial risks
in this crisis (12.4)
LO 5. describe the evolution of the global fi nancial crisis, its impact on the fi nancial
markets and the responses of governments and regulators to the crisis (12.5)
LO 6. analyse and discuss the question ‘Will there be another fi nancial crisis in the
future?’ (12.6).
Once you understand these learning objectives you will be ready to complete the
end-of-chapter review questions.
Viney - Financial Market Essentials CH12.indd 413Viney - Financial Market Essentials CH12.indd 413 29/7/10 2:17:19 PM29/7/10 2:17:19 PM
This document is distributed for marketing purposes only. No authorised printing or duplication is permitted. (c) McGraw-Hill Australia
Introduction
The great depression that began in the USA in 1929 saw a collapse in the fi nancial markets,
a signifi cant economic downturn and severe social ramifi cations associated with very high levels
of unemployment. In the wake of this crisis, the USA introduced legislation that was designed
to insulate the fi nancial system from this type of crisis in the future. The Glass-Steagall Act
of 1933, in part, prohibited commercial banks from owning full-service brokerage fi rms and
conducting investment banking activities such as underwriting.
By the end of the twentieth century, the separation of commercial banking and investment
banking activities was becoming blurred and USA legislators eventually repealed the Glass-
Steagall Act. Within a relatively short period, the global fi nancial crisis occurred (see discussion
in Section 12.5). Fin ...
Ivo pezzuto "Turning Globalization 4.0 Into a Real and Sustainable Success fo...Dr. Ivo Pezzuto
The new era of globalization, propelled by the rapid technological advancements and widespread concern for sustainable development goals, seems to be headed for a bright and promising future, driven by an unprecedented groundbreaking potential. It’s a very exciting moment for dynamic, highly competitive and innovative firms and startups to engage these days in international business, thanks to a vibrant and highly interconnected global business environment, eagerly driven knowledge-sharing communities, and ease of access to smart and seamless enabling technologies. Yet, globalization is currently facing also very serious challenges whose root causes seem to be deep and complex and if they are not fully understood and properly addressed by political leaders and multilateral institutions, they may potentially threaten to derail the existing world order. This article aims to provide a broad overview of the major opportunities and challenges of the new era of globalization and to stimulate reflections, debates, and possible new visions and strategic directions in order to create a more sustainable, socially inclusive, competitive, innovation-driven, and prosperous future for all stakeholders in the global market.
Latin America has been strongly affected by the international crisis and recession since late 2008. In comparison to historical experience, how has Latin America coped with the global crisis, which has been the role of different transmission mechanisms, and how have the region's structural and policy conditions affected its sensitivity to foreign shocks? Moreover, what policies can protect the region better from world crises and shocks, and to which extent should it rely on a strategy of close trade and financial integration into a world economy punctuated by shocks and crises? This paper addresses the latter questions in three steps. First, by assessing empirically the sensitivity of growth in the region's seven major economies during 1990-2009 to large number of structural and cyclical factors, based on high-frequency panel-data estimations. Second, by using the latter results to decompose the amplitude of GDP reductions in both recessions according to the individual and combined contribution of the different growth factors. Third, to derive the main implications of the results for the choice of macroeconomic regimes and development strategies.
Authored by: Vittorio Corbo and Klaus Schmidt-Hebbel
Published in 2011
A mature, well functioning financial system and institutions is crit.pdfexpressionnoveltiesk
A mature, well functioning financial system and institutions is critical to maximum economic
growth. Discuss completely the role of financial markets, institutions, and instruments (sources
and uses of funds) in sustaining and augmenting economic growth. Include in your response a
discussion of direct finance and indirect finance, the money market and capital market, and the
problem depository institutions face in managing their assets (use of funds) and liabilities (source
of funds).
Solution
Financial System and Economic growth:
Financial systems, i.e. financial intermediaries and financial markets, are important for
economic growth. They can lead to a more efficient allocation of resources because they reduce
the costs of moving funds between borrowers and lenders, and help overcome an information
asymmetry between borrowers and lenders. If they do not function well the economy cannot
operate efficiently and economic growth will be negatively affected.
Some economists just do not believe that the finance-growth relationship is important. For
instance, Robert Lucas asserted in 1988 that economists badly over-stress the role of financial
factors in economic growth. Moreover, Joan Robertson declared in 1952 that \"where enterprise
leads, finance follows\". According to this view, economic development creates demands for
particular types of financial arrangements, and the financial system responds automatically to
these demands.
Other economists strongly believe in the importance of the financial system for economic
growth. They address the issue of what the optimal financial system should look like. Overall,
the notion seems to develop that the optimal financial system, in combination with a well-
developed legal system, should incorporate elements of both direct, market and indirect, bank-
based finance. A well-developed financial system should improve the efficiency of financing
decisions, favouring a better allocation of resources and thereby economic growth.
The Role of Financial Markets, Institutions, and Instruments sustaining economic growth:
The financial system comprises all financial markets, instruments and institutions. Today
I would like to address the issue of whether the design of the financial system matters for
economic growth.
The role of finance in economic growth will have policy implications and shape future
policy-oriented research. The impact of finance on economic growth will influence the priority
that policymakers and advisors attach to reforming financial sector policies. Furthermore,
convincing evidence that the financial system influences long-run economic growth will
advertise the urgent need for research on the political, legal, regulatory, and policy determinants
of financial development. In contrast, if a sufficiently abundant quantity of research indicates
that the operation of the financial sector merely responds to economic development, then this
will almost certainly mitigate the intensity of research on t.
Research Proposal - Developmental Entrepreneurship in Sub-Saharan Africagueste31845
This document contains the preliminary research proposal for identifying developmental entrepreneurship opportunities that will generate both social and financial value. It includes a broad discussion of contextual factors associated with this research, and it proposes a methodology for developing a casual theory for predicting these social and financial returns a given entity would generate when addressing a given opportunity. Lastly, it delineates a range of benefits associated with the intended findings – foremost of which is enhancement of the alleviation of global poverty. Those living in embryonic markets, especially those in extreme poverty, will benefit from a powerful lever to improve standards of living, increase incomes and employment opportunities, and propagate a range of broader societal and developmental benefits. It is for these people – those in greatest need – that this work has the most value and why it is right that we undertake it.
Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
The study examined the relationship between financial deepening and economic growth for the
period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
The study examined the relationship between financial deepening and economic growth for the
period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Transitory and Permanent Effects of Capital Market Development on Capital For...AJHSSR Journal
ABSTRACT: Recent research on the relationship between capital market development and capital formation is
inconsistent.This study investigates the effect of capital market development on capital formation, and
theempiricalmethodutilisedinthisstudy, the Mundlak method,decomposestheeffectsofcapitalmarket development
on capital formation into transitory and permanent effects. This decomposition is important in order to ascertain
whether capital market development is beneficial to short-run or long-run capital formation, which is a key
determinant of a country‟s growth level.The study investigates the capital market development-capital formation
nexus byapplyingaggregate dataset from seven countries within the Sub-Saharan African
regionnamelyGhana,Kenya,IvoryCoast,Mauritius,Nigeria,SouthAfrica,and Zimbabwe over the period from 1980
to 2021. The results indicatethat capital market development has a transitory negative impact on capital
formation,but has a permanent positive impact on capital formation. More importantly, the permanent effect
seems more robust and stronger than the transitory effect. The findings conform to conventional wisdom that
Sub-Saharan African countries with well-developed capital markets experience long-run benefits of increased
capital formation and improved economic development. Based on the research findings, we recommend that
capital market authorities of Sub-Saharan African countries should prioritise policies that will boost productivity,
liquidity, and resilience. The study further recommends that Sub-Saharan African countries must improve their
capital markets‟ infrastructures, and eliminate the tax, legal and regulatory hurdles that impede the development
of their domestic capital markets.
KEYWORDS:Capitalmarketdevelopment,capitalformation,Sub-Saharan Africa, Mundlak Methodology, Panel
data.
Interaction of islamic banking sector with indonesian economic growth for 200...An Nisbah
Abstract: This paper aims to analyze the dinamics interaction of islamic banking sector with Indonesian economic growth for 2000-2010. The methode of analyze used in this research is granger causality and Vector Error Correction Model (VECM). Besides that we use stationary test to chek wether the data have unit root or not. We use time series data of total islamic bank fnancing, fxed invesstment, trade and gross
domestic product. We found that in the short run there is evidence of
bidirectional relationship between fnancing of islamic bank, fxed
investment, trade and economi growth. Where as in the long run
there is relationship between islamic banking with economic growth
on Indonesian economy. To improve the role of islamic banking on
Indonesian economy, Bank Indonesia must push islamic banking to
expand their activity on riil sector and rural area.
Keywords: Islamic Banking sector, Financial Intermediary, Economic
Growth, Vector Error Corrrection Model
Economics and Finance Society_ A Comprehensive Exploration.pdftewhimanshu23
✔Economics and Finance Society: A Comprehensive Exploration
As we delve into the heart of this nexus, we unravel the symbiotic relationship between economics and finance society,
For more information
📕Read -https://mrbusinessmagazine.com/economics-and-finance-society-comprehensive-exploration/
And get Insights
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
A small airline recently sold to a private equity group for $145 m.docxannetnash8266
A small airline recently sold to a private equity group for $145 million. The airline has earned profits of $9 million last year. The new managers believe they can grow profits at 5% per year. The private equity group borrows money from wealthy individuals to invest in acquisitions. Because of the significant risk involved, lenders are promised a 12% return on their loans to the equity group. Is the purchase price of the new airline reasonable? Explain
ISSN 0143-6597 print/ISSN 1360-2241 online/02/040607-1 4 q 2002 Third World Quarterly
DOI: 10.1080 /014365902200000529 2 607
Third World Quarterly, Vol 23, No 4, pp 607–620, 2002
Eager to defend the feasibilit y, indeed desirability, of continued mobility of cross-
border financial flows, especially after the advent of the Asian crisis (1997–98),
the G-7 countries established a series of institutions and networks, encompassin g
both state and non-state actors, in the hope of strengthening the internationa l
financial system. This strategy has been referred to as the New Internationa l
Financial Architecture (NIFA). While there are many dimensions to the NIFA, we
can identify at least three important features: the Group of Twenty (G-20), the
Financial Stability Forum (FSF), and 11 standards and codes which are collec-
tively known as the Reports on Observances of Standards and Codes (ROSCs).
Briefly, the G-20 brings together, for the first time, finance ministers and central
bank governors not only of the G-7 and the European Union, but also their
counterparts of ‘systematically important’ emerging market economies. The FSF,
on the other hand, seeks to provide regular scheduled meetings involvi ng
important national authorities from G-7 countries in order to enhance discussion s
On the contradictions of the New
International Financial Architecture:
another procrustean bed for
emerging markets?
SUSANNE SOEDERBERG
ABSTRACT The New International Financial Architecture (NIFA) was created by
powerful G-7 countries in response to the growing volatility in the developing
world. Some key components of the NIFA include: the G-20, the Financial Stabilit y
Forum and the Reports on Observance of Standards and Codes, the latte r
involving areas such as corporate governanc e. The aim of this article is to
address some important yet largely neglected questions. Why the new building ?
Who benefits from this construct ion? Unlike most accounts of the NIFA, the
following analysis does not remain focused on its institutio nal terrain; but
instead draws linkages between these structures and the paradoxes inherent in
global capitalism. One such contradiction is the constant promotion of financia l
liberalisation in emerging markets by US-led international financial institution s
(IFIs), on the one hand, and the frequency of financial crises in the developing
world, on the other. The article suggests that the NIFA is an attempt to strengthe n
(stabilise and legitimate) the scaffolding of the existing imper.
Essay Questions Unit Exam V1. With graphs and diagrams, de.docxbridgelandying
Essay Questions Unit Exam V
1. With graphs and diagrams, describe and discuss the roll and control of all the hormones involved in a reproductively competent human female menstrual cycle. Include the following graphs Gonadotropin levels, ovarian hormone levels and the uterine cycle. Read pages 1052-1056.
2. Discuss the hormonal regulation of the testicular function. The brain –testicular axis. Read pages 1038 - 1039.
3. Discuss the process of spermatogenesis the events that occur in the seminiferous tubules. Refer to pages 1033 - 1038
CHAPTER 12
CASE STUDIES IN
FINANCIAL CRISES
L e a r n i n g o b j e c t i v e s
The relevant section of the chapter is provided in brackets beside the learning
objective.
This chapter will assist you to:
LO 1. discuss important factors that are drivers of globalisation of the international
fi nancial markets (12.1)
LO 2. examine policy, structural and management issues that may create an
environment that is conducive to an evolving fi nancial crisis, and understand
the effects and consequences of a fi nancial crisis on a fi nancial system and
a real economy (12.2)
LO 3. identify and discuss risk management issues that were causal in the failure
of Barings Bank (12.3)
LO 4. identify the underlying fi nancial system weaknesses that became the precursor
to the Asian fi nancial crisis, and explain the interrelationships of fi nancial risks
in this crisis (12.4)
LO 5. describe the evolution of the global fi nancial crisis, its impact on the fi nancial
markets and the responses of governments and regulators to the crisis (12.5)
LO 6. analyse and discuss the question ‘Will there be another fi nancial crisis in the
future?’ (12.6).
Once you understand these learning objectives you will be ready to complete the
end-of-chapter review questions.
Viney - Financial Market Essentials CH12.indd 413Viney - Financial Market Essentials CH12.indd 413 29/7/10 2:17:19 PM29/7/10 2:17:19 PM
This document is distributed for marketing purposes only. No authorised printing or duplication is permitted. (c) McGraw-Hill Australia
Introduction
The great depression that began in the USA in 1929 saw a collapse in the fi nancial markets,
a signifi cant economic downturn and severe social ramifi cations associated with very high levels
of unemployment. In the wake of this crisis, the USA introduced legislation that was designed
to insulate the fi nancial system from this type of crisis in the future. The Glass-Steagall Act
of 1933, in part, prohibited commercial banks from owning full-service brokerage fi rms and
conducting investment banking activities such as underwriting.
By the end of the twentieth century, the separation of commercial banking and investment
banking activities was becoming blurred and USA legislators eventually repealed the Glass-
Steagall Act. Within a relatively short period, the global fi nancial crisis occurred (see discussion
in Section 12.5). Fin ...
Ivo pezzuto "Turning Globalization 4.0 Into a Real and Sustainable Success fo...Dr. Ivo Pezzuto
The new era of globalization, propelled by the rapid technological advancements and widespread concern for sustainable development goals, seems to be headed for a bright and promising future, driven by an unprecedented groundbreaking potential. It’s a very exciting moment for dynamic, highly competitive and innovative firms and startups to engage these days in international business, thanks to a vibrant and highly interconnected global business environment, eagerly driven knowledge-sharing communities, and ease of access to smart and seamless enabling technologies. Yet, globalization is currently facing also very serious challenges whose root causes seem to be deep and complex and if they are not fully understood and properly addressed by political leaders and multilateral institutions, they may potentially threaten to derail the existing world order. This article aims to provide a broad overview of the major opportunities and challenges of the new era of globalization and to stimulate reflections, debates, and possible new visions and strategic directions in order to create a more sustainable, socially inclusive, competitive, innovation-driven, and prosperous future for all stakeholders in the global market.
Latin America has been strongly affected by the international crisis and recession since late 2008. In comparison to historical experience, how has Latin America coped with the global crisis, which has been the role of different transmission mechanisms, and how have the region's structural and policy conditions affected its sensitivity to foreign shocks? Moreover, what policies can protect the region better from world crises and shocks, and to which extent should it rely on a strategy of close trade and financial integration into a world economy punctuated by shocks and crises? This paper addresses the latter questions in three steps. First, by assessing empirically the sensitivity of growth in the region's seven major economies during 1990-2009 to large number of structural and cyclical factors, based on high-frequency panel-data estimations. Second, by using the latter results to decompose the amplitude of GDP reductions in both recessions according to the individual and combined contribution of the different growth factors. Third, to derive the main implications of the results for the choice of macroeconomic regimes and development strategies.
Authored by: Vittorio Corbo and Klaus Schmidt-Hebbel
Published in 2011
A mature, well functioning financial system and institutions is crit.pdfexpressionnoveltiesk
A mature, well functioning financial system and institutions is critical to maximum economic
growth. Discuss completely the role of financial markets, institutions, and instruments (sources
and uses of funds) in sustaining and augmenting economic growth. Include in your response a
discussion of direct finance and indirect finance, the money market and capital market, and the
problem depository institutions face in managing their assets (use of funds) and liabilities (source
of funds).
Solution
Financial System and Economic growth:
Financial systems, i.e. financial intermediaries and financial markets, are important for
economic growth. They can lead to a more efficient allocation of resources because they reduce
the costs of moving funds between borrowers and lenders, and help overcome an information
asymmetry between borrowers and lenders. If they do not function well the economy cannot
operate efficiently and economic growth will be negatively affected.
Some economists just do not believe that the finance-growth relationship is important. For
instance, Robert Lucas asserted in 1988 that economists badly over-stress the role of financial
factors in economic growth. Moreover, Joan Robertson declared in 1952 that \"where enterprise
leads, finance follows\". According to this view, economic development creates demands for
particular types of financial arrangements, and the financial system responds automatically to
these demands.
Other economists strongly believe in the importance of the financial system for economic
growth. They address the issue of what the optimal financial system should look like. Overall,
the notion seems to develop that the optimal financial system, in combination with a well-
developed legal system, should incorporate elements of both direct, market and indirect, bank-
based finance. A well-developed financial system should improve the efficiency of financing
decisions, favouring a better allocation of resources and thereby economic growth.
The Role of Financial Markets, Institutions, and Instruments sustaining economic growth:
The financial system comprises all financial markets, instruments and institutions. Today
I would like to address the issue of whether the design of the financial system matters for
economic growth.
The role of finance in economic growth will have policy implications and shape future
policy-oriented research. The impact of finance on economic growth will influence the priority
that policymakers and advisors attach to reforming financial sector policies. Furthermore,
convincing evidence that the financial system influences long-run economic growth will
advertise the urgent need for research on the political, legal, regulatory, and policy determinants
of financial development. In contrast, if a sufficiently abundant quantity of research indicates
that the operation of the financial sector merely responds to economic development, then this
will almost certainly mitigate the intensity of research on t.
Research Proposal - Developmental Entrepreneurship in Sub-Saharan Africagueste31845
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Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
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period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
The study examined the relationship between financial deepening and economic growth for the
period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
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Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
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Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
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Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
1. 188 Manuela W. Armenta
9
Manuela W. Armenta is a M.A. Candidate at the Norman Paterson School of Inter-
national Affairs, Carleton University (manuela.armenta@gmail.com).
The Financial Sector and
Economic Development:
Banking on the Role of
Human Capital
Manuela W. Armenta
Evidence suggests that human capital development contributes
to the stability of banks. Unfortunately, developing countries,
bothpre-andpost-liberalization,oftensufferfromaninadequate
supply of capable professionals. This situation threatens the
potentiallypositiverelationshipbetweenfinancialliberalization
and economic growth. It is therefore urgent that developing
states develop policies aimed at addressing the supply and de-
mand-side requirements of the financial sector. Such policies
must target the development of professionals with both ap-
propriate academic backgrounds in business and the requisite
on-the-job skills. Public-private solutions are advocated as the
most efficient and effective approach to the development of
comprehensive policies in this regard.
Introduction
Thefinancialsectoranditsroleintheprocessofeconomicdevelopmenthas
attracted notable attention since the early 1990s. In particular, the crucial
need for a stable banking system was highlighted in the wake of the Asian
financial crisis of the late 1990s. The rapid influx of short-term, specula-
tive capital flows to Asian economies was a major contributing factor to
the crisis. States with stronger domestic financial sectors and particularly
2. 189
The Financial Sector and Economic Development:
Banking on the Role of Human Capital
robust banks, however, better absorbed the ripple effects of the external
shock. Increasing the openness of financial markets via liberalization may
not be positively related to economic growth unless banks are stable and
sophisticated enough to absorb international investment, competition,
and negative shocks. This article examines whether strengthening human
capital in banks can bolster the integrity and stability of domestic banks
and thereby improve their ability to respond to the complexity and volatil-
ity of international financial markets.
This article does not argue against liberalization; rather, it employs a
methodology that analyzes the empirical, theoretical, and industry condi-
tions in order to investigate the importance of human capital formation
andrelatedpoliciestothedevelopmentofstableandsophisticateddomestic
commercial banks and long-run economic growth. The article argues that
human capital is crucial to bank stability, a factor that has been overlooked
inthefinancialliberalizationliterature.Althoughthereisapositiverelation-
ship between human capital formation and financial sector development,
many developing states lack graduates and professionals with the academic
and on-the-job training necessary to operate efficient banks. This article
first provides an in-depth examination of the potential role of the state and
the industry in policy design. Two policy approaches are then developed,
bothofwhicharticulatehowwell-designedpublic-privatepartnershipscan
be used to develop the human capital requirements necessary to increase
overall domestic financial system stability and economic growth.
Economic Theory and the Financial Sector
To understand why financial sector development, under certain condi-
tions, may be positively related to economic growth, it is necessary to
understand the critical function the sector provides to the economy. The
financial sector is unique because of the risk and uncertainty faced by
both savers and investors (Stiglitz 1998). Savers are often unable to select
the investment project that best matches their personal risk appetite and
without pooling their money, savers cannot take advantage of increasing
returns to scale in investments (Stiglitz 1998).
Moreover, individual entrepreneurs or investors commonly lack suf-
ficient capital to proceed with projects on their own. Commercial banks
provide an intermediation service that brings savers and investors together,
theoretically channeling investment funds to the uses that yield the highest
rate of return, thus increasing specialization and the division of labor (To-
daro 2003). Risk is pooled, transferred, and reduced by commercial banks
while liquidity and information increase through the use of progressively
3. 190 Manuela W. Armenta
more sophisticated financial products and technology. Neoclassical growth
models tell us that an increase in the efficient investment of savings in new
and innovative projects is one of the main engines of economic growth.
It should be noted that the previous discussion assumes that markets
are free from distortionary policies and therefore adjust automatically to
economic change. In examining of the utility of liberal markets, McKin-
non argues that flows of savings and investment should be voluntary and
significantlydecentralizedinanopencapitalmarketatclosetoequilibrium
interest rates (McKinnon 1973). The pro-liberalization literature of the
l980s further points out that in order for commercial banks to operate
efficiently and profitably in the role described above, financial markets
cannot be repressed by government policies, including interest rate ceil-
ings, directed lending, and corruption (Todaro 2003). At that time, the
consensus that liberal markets were a necessary ingredient in the ‘growth
recipe’ gained significant momentum to the extent that market liberaliza-
tion often became equated with growth.1
Proponentsofliberalizationarequitecorrectinpointingoutthatrepres-
sive policies and macroeconomic instability can cause severe contractions
in the amount of savings and therefore loanable funds. Such contraction
often leads to what is referred to as a “credit crunch,” which has the inher-
ent danger of leading to a decline in investment (Todaro 2003). Financial
repression by developing country governments was widespread up until
the 1980s and examples of its negative effects are well-documented. Yet,
further research indicates that liberal markets are a necessary, however
insufficient, condition for the creation of stable financial markets and
sustainable growth.
Financial Sector Depth, Liberalization and
Growth
The argument that liberalism alone leads to growth has been challenged
by a 2005 empirical study by Rousseau and Watchel.These authors sought
to retest the previously entrenched finance-growth theory, pioneered
by King and Levine in 1993 and Barro in 1991, which postulated that
financial sector development leads to economic growth. In developing
their theory, King and Levine used variables to measure a state’s level of
financial development (ratios of liquid liabilities or claims on the private
sector to GDP) with the traditional growth regression for data ranging
from 1960-1989. The authors found a strong and statistically significant
relationship,whichledthemtobelievethatfinancialdevelopment,defined
in terms of ratios of liquid liabilities and the level of credit extended to
4. 191
The Financial Sector and Economic Development:
Banking on the Role of Human Capital
the private sector, was positively related to growth.2
Their work provided
the empirical foundation for the widespread acceptance of the finance-
growth relationship.
When Rousseau and Watchel retested the finance-growth hypothesis
with more recent data ranging from 1960 to 2003, they found that the
relationship disappeared over the period of 1985-89 for the coefficient of
M3 as a percentage of GDP and during 1990-94 for the coefficient on
private sector credit.3
It was at this time that numerous developing states,
especially in Latin America, went through rapid financial liberalization
and opening to world economic markets.
The uninspiring growth performances of the late 1990s in many of
thesenewlyliberalizedemergingmarkets,aswellasRousseauandWatchel’s
findings on the breakdown of the empirical relationship between finance
and growth, suggest that in the absence of stable financial institutions,
rapid liberalization may be counterproductive and provide perverse incen-
tives for banks to lend imprudently. Such activity may result in a severely
strained or collapsed domestic financial sector if imprudent lending leads
to non-performing loans, illiquidity, insolvency, and capital flight.4
Rous-
seau and Watchel suggest that post-1990 credit and deposit growth in
financial markets may have taken place without the requisite develop-
ment of lending expertise (Rousseau and Watchel 2005). It is therefore
plausible that as liberalization was implemented the relationship between
it and economic growth disappeared as the weakness of the sector was
exposed. Two points follow: (1) the allocation of credit by bankers may
require knowledge-based expertise, a point that receives little recognition
in the literature pertaining to financial sector development and, (2) the
need for expertise arguably increases exponentially in light of the compe-
tition and the level of sophistication that exposure to world markets and
international firms brings.
The literature on financial sector stability currently focuses on the
regulatory regime, access to information, and legal structures such as
bankruptcy and creditor protection legislation. Questions of transparency
and fair competition and procedures to reduce rent-seeking, cronyism, and
corruption also garner considerable attention. While these regulatory and
institutional factors are crucial, the role of human capital in banks and
other financial institutions has received too little attention.
Human Capital Formation and Financial Sector
Development
Outreville was the first to attempt an empirical analysis on the role of
5. 192 Manuela W. Armenta
human capital in financial development (Outreville 1999). His study
was based on a cross-country analysis of developing countries, which is
similar to the style of analysis used by Barro in 1991. Although a number
of critiques exist regarding the use of cross-country regressions, the paper
states early on that because of the difficulties associated with the data used
to measure socio-economic variables such as human capital, its intention
is only to establish correlation, rather than attempt to attribute causality
(Outreville 1999). In conformity with the literature, Outreville utilizes
quantity indicators based on monetary and credit aggregates to measure
financialdepth.Forhumancapitalmeasures,theindictorsusedincludethe
human development index, the percentage of the labor force with tertiary
level education, and “human capital accumulation” which is defined as the
capacity of nations to adopt, implement, and develop new technologies.
Overall, the Outreville study found high correlations between measures
of financial development and human capital. The findings confirmed the
existenceofsignificantreturnstohumanresourcedevelopment,suggesting
that action must be taken to develop policies that increase capacity where
deficiencies lie. However, it is first necessary to gain a better understanding
of the nature of these skill shortfalls in the context of developing states.
The emergence of the global “knowledge-based economy” has in large
part been driven by the acquisition and development of knowledge-based
skills. Banking is a knowledge-based service industry that has always re-
quired specialized training but increasingly demands a more sophisticated
skill mix. The expertise required by the industry can be divided into two
sub-sets: (1) academic training, and (2) on-the-job skills. In terms of aca-
demic training, the required knowledge includes intermediate accounting,
corporate finance, business law, economics, and strong written and oral
skills (Carlson 1997).
The on-the-job training portion, which relies upon the assumption that
an employee has acquired the prerequisite academic education, includes
learning how to perform the following skill-driven tasks: credit analysis,
credit investigations, and the professional conveyance of unpleasant infor-
mation. Moreover, training also involves becoming familiar with banking
laws and regulations, interviewing customers, and negotiating business
deals using sales techniques (Carlson 1997). Finally, post-liberalization,
the development of credit granting criteria (credit policy) becomes the
responsibility of the bank as opposed to the government. Credit policy
development involves the creation of standards around the provision of
credit, investments in securities and subsidiaries, choices about the kinds
of capital investments to make, and hiring decisions (Carlson 1997). Logi-
6. 193
The Financial Sector and Economic Development:
Banking on the Role of Human Capital
cally, credit analysis, the process of determining which projects will receive
credit, monitoring investments, and the overarching credit policy that
guides such decisions require fair mastery of the skills outlined above.
Banks in developing states commonly encounter two problems at the
officer and management levels that are relevant to this discussion: (1) dif-
ficulty finding candidates possessing the appropriate skill mixes during
recruitment, and (2) insufficient staffing, which refers to a lack of skills in
employeeswhoarealreadyon-the-job(Carlson1997).Furthermore,many
developing states previously used or continue to use inefficient lending
policies that were either left over from colonial rule or the result of govern-
ment efforts to direct lending toward “priority” sectors (Carlson 1997).
It is imperative for banks to have managers who are skilled at objectively
assessing credit risk based on market forces by conducting penetrating
interviews with prospective clients, performing detailed financial analyses,
and judging the validity of available information. These skills are a vital
part of the institutional strengthening process and yet are often deficient
in pre-liberalized or newly liberalizing states. As McNaughton notes,
“Substantial training is needed to support institutional development. In
many developing financial markets, particularly in Eastern Europe and
the former USSR, scarce skills are a huge impediment to banking develop-
ment” (McNaughton 1997, 172).
Institution and governance building are processes that often follow
liberalization. If banks undergo institutional development and restructur-
ing, they will often overhaul or create policies for credit risk management,
financial management, and compliance and control systems. This process
mustbeledbycompetentmanagers;however,whenmanagementfallsshort,
the process may be compromised. Based on the skills outlined above and
the crucial nature of the functions they pertain to, it is not difficult to see
the need for both academic and on-the-job human capital development,
especially in emerging states that are either on the cusp of liberalization or
have already opened up. Unfortunately, such human capital investments
have often been neglected to the detriment of the economy.
The policy problem we are confronted with is how to best address: (1)
incorrectskillmixesoracademicbackgrounds,and(2)insufficientstaffing.
Clearly, the selected policy will need to shore up both the academic and
on-the-job training supply shortfalls. In attempting to determine what the
most effective options may be, it is useful to first examine: (1) whether state
involvement is an efficient option with which to address issues related to
academic training, and (2) which actors or institutions are most likely to
bear the burden of increased on-the-job training. A thorough analysis of
7. 194 Manuela W. Armenta
these factors will shape a more informed and effective approach.
Policy Considerations
Developing Academic Backgrounds: Theory
During recruitment employers are often confronted with a lack of can-
didates possessing the prerequisite skill mix, specifically the relevant aca-
demic background. Arguments surrounding the appropriate level of state
involvement in the economy can be used to inform decisions its optimum
role in the formation of human capital stock related to the financial sector.
In the World Bank’s discussion of the “East Asian miracle” and in other
related literature, it is argued that development assistance should focus on
providinguniversalprimaryeducationduetotheequityandefficiencypay-
offs it yields (Todaro 1999; World Bank 1993). Private returns to primary
education should lead to demand for secondary and eventually tertiary
schooling. The World Bank literature supports private rather than public
financing of tertiary education due to the inefficiencies associated with
state funded universities and based on the argument that private returns
to higher education significantly exceed social returns.
This approach seems suitable for states in early phases of development;
however, it is perhaps less suitable for emerging markets where primary
and secondary education will not deliver the skill mix the economy re-
quires. The equity returns to primary and secondary school alone are not
likely to create an egalitarian society in which all students have financial
access to tertiary education. Moreover, one must consider potential bar-
riers, such as the influence of risk and taste, rather than simply assessing
the ability to pay for a university education as the sole variable positively
influencing enrollment.
The foregoing suggests that states may have different roles to play
depending on the development juncture they are at. The idea that two
distinct junctures exist, the first where it is optimum to focus investment
in primary education and the second where it is optimum to encourage
tertiary and vocational skills training, is discussed in the literature as the
existence of multiple equilibria (Green et al. 2003). Economic adjustment
will create new skill demands within the economy and as a less developed
state becomes an emerging market, it moves from low to high-skilled equi-
libria. Arguably, the state has a role to play in identifying and coordinating
the needs of the economy at both of these critical junctures. The question
is, “What is the optimum level of state involvement?”
The general debate within the economic development canon about the
optimum mix of state and market is well established and, if policy makers
8. 195
The Financial Sector and Economic Development:
Banking on the Role of Human Capital
wish to be efficient, a close examination of what the state can offer must be
balanced against the potential costs. The role of the state as the provider of
information, public goods, and services is commonly accepted. However,
the role of the state as the central guide for the economy is now generally
viewed as undesirable, mainly because the market tends to coordinate eco-
nomic activity with a lower failure rate than government. This is because
the government does not tend to be as flexible as the market in adjusting
to the forces of supply and demand.
However, for reasons related to inadequate financing, potential risk
and tastes, there is a case for government intervention in human resource
development because individual consumers in developing countries tend
to underinvest in education (Green et al. 1999). Even when a state moves
from a low to high-skill equilibria, pursuit of specialized academic accredi-
tation is invariably a long-term and uncertain investment (Green et al.
1999). It is thus the case that many boundedly rational individuals may
opt for comparatively general training to mitigate downside risk (Green
et al. 1999). If this tendency is combined with rapid social and economic
development during market liberalization, there is a risk of a mismatch
between the supply of skills and the demands of the economy (Green
et al. 1999). It is at this juncture, ceteris paribus, that the state may have
superior information about the returns to various types of skill formation
(Green et al. 1999).5
A second central element in skill formation is the social and economic
context. Particularly important is the level of inequality and whether or
not education increases social ranking. In the case of South Korea, this
factor arguably played a crucial role in generating demand for tertiary
education (Green et al. 1999).6
If government has superior information,
it would be efficient for them to coordinate skill matching using market
friendly incentives (rather than central planning schemes) and foster a
more egalitarian society through development-related policies.
Addressing Insufficient Staffing Through On-the-Job
Training: Theory
It is useful to rely on the seminal work done by Becker in 1975 on human
capital as well as other research on the nature and characteristics of the
banking industry to determine how best to increase on-the-job training for
both new hires and current staff that possess insufficient skills. On-the-job
training will be defined here as occurring within the firm; however, the
nature of the industry and, more specifically, the nature of the skills to be
imparted will determine whether or not firms will be willing to bear any
or part of the cost.
9. 196 Manuela W. Armenta
Beckerusesempiricalandtheoreticalanalysestohelp“fillagapinformal
economic theory” and offers in his general analysis, “a unified explanation
of a wide range of empirical phenomena which have either been given ad
hocinterpretationsorhavebaffledinvestigators”(Becker199330).Becker’s
discussion can be used to draw insights into two characteristics of the bank-
ing sector in developing countries, namely: (1) why banks are more likely
to offer and pay for on-the-job training, and (2) why there is a tendency
for firms in underdeveloped states to appear more paternalistic vis-à-vis
employees relative to those in developed states (and also display “cradle-
to-grave” policies where new hires start at entry levels and are expected to
remain with the firm for the duration of the their careers) (Carlson 1997).
Becker’s analysis shows that firms are more likely to perform and pay for
on-the-job training when the training raises the marginal productivity of
workers above the marginal wage, but only when the firm can profitably
capture these returns. It logically follows that firms are more likely to
capture such returns when the likelihood of turnover is low.
Becker, however, makes an important distinction between two types of
on-the-job training: general and specific. General training can be used in a
number of different firms and across industries (Becker 1975). Although
general training increases the marginal productivity of workers in the
training firm, it also increases it in many other firms; therefore, perfectly
general training raises both the marginal product and wage rate by equal
amounts in all firms. In this case, the training firm does not capture a
return (Becker 1975). By contrast, specific training raises the productivity
of employees more in the firms providing it as opposed to in other firms
(Becker 1975). Yet, only perfectly specific training is non-transferable
(Becker 1975).
With regard to turnover, economic theory often assumes perfect
competition; wages are assumed to equal the marginal product and thus,
turnover is not an issue because employees are marginal (they cannot be
made better off by switching firms). In the case of more specific training,
however,wherethemarginalproductexceedswagesaftertraining,turnover
is possible. Recalling that a firm will only provide specific training if it can
ensure the capture of sufficient productivity returns to cover the costs of
training costs, a wage premium may be paid to keep the employee from
transferring (although that premium would not exceed the full marginal
difference between the increased productivity and the marginal wage)
(Becker 1975).
These initial concepts establish the theoretical underpinnings required
to assess whether firms and industries are more or less likely to provide
10. 197
The Financial Sector and Economic Development:
Banking on the Role of Human Capital
and finance on-the-job training for employees. Becker explains how
wage increases can also be used to increase productivity if they increase
emotional and physical health. It is argued that in developing states, “an
increase in consumption has a greater effect on productivity…and that a
productivity advance raises profits more there either because firms have
more monopsony power or because the advance [in productivity] is less
delayed,” (Becker 1993, 57).
Application of these theoretical arguments to the subject at hand leads
to two conclusions. First, it is apparent that skills required by the bank-
ing industry are more specific. If the theory is applied to intra-industry
comparisons, almost all of the skills would be specific in nature aside
from interviewing, negotiating, and sales skills. Furthermore, at the firm
level, credit policies and procedures are bank-specific and it is likely that
familiarization with one bank may not be fully transferable to competing
banks. Turnover, however, remains a possibility because the skills are not
perfectly specific and because assumption of perfect competition rarely
holds outside of models. Therefore, it is fair to suggest that banks would
be willing to train and likely pay a wage premium to mitigate the risk of
turnover.
Second, the likely reason the “paternalist” tendency is common in less
developed countries relates to the way that wage increases affect produc-
tivity. Wage increases in emerging economies, be they associated with
the desire to reduce turnover after specific training or to obtain increased
productivity gains, tend to be allocated to consumption of basic needs.
This is because in lower income states wage increases are more likely to
be used for staple consumption due to the law of diminishing marginal
returns. Thus, the observed tendency towards paternalism or “cradle-to-
grave” policies is largely explained by the fact that incentives exist for both
firms and employees to perpetuate them.
Policy Recommendations and Rationale
Basedontheforegoinganalysisofpolicyconsiderations,thisarticleproposes
two policy options which involve public-private partnering and linking
solutions that leverage the potential for a number of actors to contribute
to human resource development, rather than making trade-offs. The two
human resource challenges faced by banks, “wrong skill mixes” and “insuf-
ficientstaffing,”representskillmismatchesandshortfalls.Fromthefollowing
discussion, it is evident that there are three sector-specific characteristics
of the policy problem: (1) banks face skill supply shortages during recruit-
ment and internal shortfalls, (2) banks will be willing to assume the role
11. 198 Manuela W. Armenta
and cost of on-the-job training, yet lack the capacity to shore up academic
deficiencies, and (3) at the juncture when the economy is adjusting from
a low to a higher skill based system, state involvement to coordinate skill
matching through incentive manipulation may be useful.
Policy Option 1
The first option is aimed at addressing the inadequate mix of skills. This
proposal is inspired by the case of Malaysia, where universities opened up
to private investment and in some cases corporations were permitted to
run universities (Rudner 1997). The infusion of private capital lightened
the budgetary burden on government while capturing the management
efficiencies of the private-sector. In order to encourage students to enroll
in business and related academic programs, meritocratic financing may be
offered in part by government and in part by private banks. This kind of
targeted public-private sector financing is in the interests of the financiers,
the state and the prospective students.
Watson critiques the use of loans and/or graduate taxes at the second-
ary and tertiary levels by highlighting the burden they place on students
and the indirect benefit they provide to the rich (Watson 1996). In the
interests of egalitarianism, it is quite correct that programs which indirectly
select for wealth are undesirable and normatively unacceptable. However,
Watson also states that governments should subsidize higher education
unless doing so deprives another sector (Watson 1996).
Aprogramaimedatthedevelopmentofbusinessprogramgraduatesinto
professionalbankersisrecommendedhere,basedonthecaveatthatstudents
would be required to spend a specified period of time with a sponsoring
bank. Post-graduation, the individual would commence employment as
a management trainee within the bank and move into more sophisticated
functions as they progressed.The idea is similar to programs already found
in developed economy banking industries. Banks often recruit students
directly from commerce programs and streamline them into twelve- to
eighteen-month training programs where it is expected that the students
will remain with the firm for some period afterwards.
Since firms would be expected to sponsor a portion of students’ aca-
demic tuition, a front-end post-graduation commitment from students
provides an incentive for private-sector participation. From the point of
view of the firm, non-recoverable portions of their tuition investment
represent the value of being able to source qualified individuals in supply
shortage scenarios.
The condition of supply shortages is an inherent assumption of this
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The Financial Sector and Economic Development:
Banking on the Role of Human Capital
proposal; however, this condition is dynamic.The policy, therefore, would
need to include strong multi-lateral communication mechanisms whereby
thestategathersinformationandconsistentlyconsultswithrepresentatives
from participating banks to stay abreast of the supply conditions at the
industry level. The policy should phase out as development increases and
as risks are outweighed by rewards to higher education. Rising income
levels and increasing economic and social information about the returns
to business training would theoretically become so widespread (as in the
case of South Korea) that individual consumers would be in a position to
pay for their own education and calculate that potential returns outweigh
costs as well as other downside risks.
Policy Option 2
The second policy approach is designed to deal with skill shortfalls of cur-
rent staff, which relates to upgrading “on-the-job” skills that are generally
more specific in nature. Recall that firms have an incentive to train when
skills are specific, as they are in banking.
While we may hope to rely upon firms to provide “on-the-job” training,
not all firms may have the capacity to do so. If there are insufficient skill-
levels in higher level positions, as indicated may be the case by Carlson’s
1997 study, then it is perhaps logical to question whether emerging market
banks, both pre- and post-liberalization, possess the requisite internal level
of expertise to train either existing staff or new hires. This issue also calls
into question the potential effectiveness of the first policy above, which
relies upon the assumption that firms will be able to absorb academically
qualified graduates.
In general, during periods of rapid economic expansion, deficiencies in
higher level skills are often a reality (Rudner 1997). East Asian countries,
realizing their need for access to these skills, responded to widespread and
acute shortages of qualified professionals by opening up their education
sector to the domestic and international private sector, while simultane-
ously continuing to inject large portions of public funding into the system
(Rudner 1997). One result was the emergence of international exchanges
of scholars that improved the quality of research and instruction capa-
bilities within education institutions (Rudner 1997). In some cases, aid
dollars were made available to support such exchanges (Rudner 1997).
Institutional linkage-building and partnering are two other mechanisms
that were used to address shortfalls in curriculum design, technology, and
program delivery (Rudner 1997).The formalization of knowledge-sharing
through these contractual-type arrangements provides certainty that the
13. 200 Manuela W. Armenta
skills transfer process will be uninterrupted, therefore providing long-term
assurances to policy-makers.
Policies similar in structure to those employed in the market for higher
education, as described above, could be used to address analogous defi-
ciencies in banking sectors. In the case of banks, these strategies would
attract fewer potential critiques along the lines of the “Westernization”
or cultural homogenization arguments mounted against such practices
in the realm of education (Rudner 1997). Although the culture of doing
business will vary, the nature of the analytical requirements, portfolio
monitoring skills, risk assessment, and often the accounting standards are
far more culturally neutral and internationally standardized than in many
other areas of economic activity, especially with increased adherence to
the Basel Capital Accord.
In this context, the idea is to set up a program that institutionalizes
professional skills transfer by creating a pool of interested developed state
bankers, with a specified level of experience, which could be placed for
variable terms in training and coaching roles in emerging market banks.
Theoptimumformforthistypeofprofessionalexchangewoulddependon
the level of interest on both the supply and demand side and should begin
as a beta test.The formalization of this stock of professionals could later be
embodied in an organization similar to those established by other profes-
sionals who desire to make contributions in the field of development.
Withregardtoastructuralmodel,onemaywishtolooktothewell-known
and reputable organization Doctors without Borders, which supplies the
skills of well-trained, experienced medical professionals around the world
in response to emergencies. The organization relies on public donations
for 80% of its financing, with the remainder from international agencies
and governments (Doctors without Borders 2006). The establishment of an
analogous organizational concept, which could be called ‘Bankers without
Borders,’ is one possible way to achieve professional skills transfers for the
development of stability in developing country banks. This organization,
however, would not likely be in a position to rely on public donations due
to the association of banking and the financial industry with high levels
of profitability and the near demonization of corporate interests the realm
of development.
This is a novel idea presented here for the first time and it is therefore
in its infancy. It clearly requires the development of a detailed business
case. However, a number of considerations emerge immediately. First, the
program would require state support on both the sending and receiving
side. Financing this endeavor would depend on the level of interest it elic-
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The Financial Sector and Economic Development:
Banking on the Role of Human Capital
its amongst experienced banking professionals. In corporate professions,
the importance of remuneration is traditionally high and thus may aid
funding, but receiving government funds and assistance from multilateral
organizationsmayalsobenecessary.Ownershiponthepartofthereceiving
government is also crucial to ensure that permission for the visa issuance
for the incoming professionals is facilitated.
There is also a potential financing role for developed country banks.
Corporate sponsorship of philanthropic activity, including sending em-
ployees overseas to work on development projects for specified periods
of time, does occur. Employee programs, where professionals are sent to
facilitate short training seminars overseas, may be feasible if they did not
exceed a period of a month.7
There may also be professional bankers with
a number of years of experience who prefer to leave developed country
banks entirely due to a lack of personal fulfillment and who desire broader
professional experience.These individuals would theoretically be in a posi-
tion to engage in longer-term placements of six months or more.
Placing structuring issues aside, the rationale behind the idea that
professional bankers in developed states could be used to transfer skills is
something that has been done in other economic sectors. The literature
is clear on the high returns to human capital capacity building for states
whose economies possess high skill shortfalls among current employees
and that, in some cases, such shortfalls may only be addressed by external
sources. Banking professionals in developed states often have extensive
internally provided on-the-job training through seminars, direct one-on-
one skills coaching, and mentorship experience. As trainees develop, they
move into coaching and mentoring roles themselves. It is this culture of
continuouslearninganddevelopmentthatwouldmaketheseprofessionals
arguably the most qualified candidates for capacity building roles. Gov-
ernment bureaucrats or staff from independent regulatory organizations
cannot offer the skills and expertise possessed by experienced corporate
banking professionals.
Conclusion
This article argues that financial sector human capital, in the form of
skilled and competent professional bankers contributes to the stability of
banks. Unfortunately, developing countries, both pre- and post-liberaliza-
tion, often suffer from an inadequate supply of capable professionals.This
situation threatens the potentially positive relationship between financial
liberalization and economic growth. It is therefore urgent that developing
states develop policies aimed at addressing the supply and demand side
15. 202 Manuela W. Armenta
requirements of the sector. Such policies must target the development of
professionals with both the appropriate academic background in business
and the requisite on-the-job skills. Public-private solutions are advocated
as the most efficient and effective approach to the development of com-
prehensive policies in this regard.
Notes
1
This method of thinking led to the development of a cache of policies often
described as the “Washington Consensus.”
2
Rousseau and Watchel explain how liquid liabilities, specifically M3, as a percent-
age of GDP, are used as a standard measure of the depth of financial markets
and as an indicator of the overall size of financial intermediary activity in
cross-country studies.
3
M3 is a measure of the money supply that includes M2, plus large time deposits
and buybacks of maturities in excess of one day at commercial banks and in-
stitutional money market accounts.
4
Theseoutcomeswererelativelycommoninanumberofregionsaftertheeconomic
crisis of the late 1990s.
5
This tendency will increase or decrease depending on state size and the level of
state-economy involvement.
6
The forgoing discussion must be predicated upon relatively low levels of corrup-
tion, rent-seeking and inefficiency in the bureaucracy and commitment to a
coherent economic growth strategy. Where these conditions do not apply and
state-strength is low, the utility of the implied role for the state is significantly
diminished. (Please see Green et al., 1999), as listed in the References, for a
detailed discussion.
7
The one month time frame was suggested in an effort to limit the time bank-
ing professionals from developed countries spent away from their primary
employer.
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