Download Slide 1 - World Bank

Discussion of “How Important Historically
Were Financial Systems for Growth in the
U.K., U.S., Germany, and Japan?”
Financial Structure and Economic
Development Conference, World Bank
Philip T. Hoffman, Caltech ([email protected])
Long run overview of relationship between
growth and financial development
 Examines 4 developed countries
 banks, securities markets, governments, internal
finance, and alternative sources
 over long run
 Bottom line
 Financial development matters
 But different financial structures
 Optimal structure may not matter much
Most will agree that financial
development matters for growth
 Issue: is there an optimal financial
structure and does it matter?
 Those who say yes would want
 control for endowments and history of growth
 Results might then fit trend toward large
financial markets and banks
 But you have to control for political
institutions
 All 4 cases have secure property rights and fairly
open entry
What about those who, like
authors, disagree?
 There was even more variety than
paper suggests
 particularly in alternative sources of
financing (often matching markets)
 These sources hard to get at but
important
 German and Japanese sections do a
good of suggesting as much
 Japan: coordinators help small joint
stock firms raise money from investors
Another example of alternative
finance: mortgages
 Left out except in German section
 But important for growth
 for infrastructure, housing, life cycle
 and even initial industrial finance
 And big too; circa 1900 mortgages
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38% GDP US; bank loans only 24% GDP
12-25% or more GDP UK
> 55% NNP Germany
> 20% GDP France
Much mortgage finance came from
alternative matching markets
 Difficult to estimate but circa 1900
 Financial institutions hold only 36% of
mortgages US
 Individuals hold 50 to 65% of British
mortgages
 nearly 80% France
 > 32% Germany
 Alternative sources big: how do they
fit into choice of optimal system?