The State of Finance in Asia and the Pacific

The State of Finance in Asia and the Pacific

Date: 
Thursday, April 27, 2017
Type: 
Public information and advocacy materials
Abstract

A healthy and dynamic financial sector that considers demographic shifts, rapid urbanization, large infrastructure needs, and the evolving structure of economic activity in Asia itself is needed to mobilize large savings into the most productive activities. However, financial sectors in the region are ill-suited to respond to these needs of the region. In this context, this paper examines why despite having abundant domestic savings that can be used to finance their needs, the region is excessively dependent on volatile capital inflows for its economic development. The paper analyses the demand of funds by companies and individuals through financial markets and institutions and the supply of funds by domestic institutional investors in selected Asian countries. The paper shows that Asia has a diverse set of financial systems that vary not only in depth (size and liquidity of markets) but also in access (ability of individuals and companies to access financial services) and in efficiency (ability of financial institutions to provide financial services at low cost and with sustainable revenues, and at the level of activity of capital markets). The paper also introduces a new broad-based financial development index including depth, access and efficiency of the financial system and provides a comprehensive understanding of the level of financial development in Asia and the Pacific. Finally, the last section of the paper examines whether there is a threshold beyond which financial development can be detrimental to economic growth and whether this threshold effect is relevant for the region.

Download: 

The State of Finance in Asia and the PacificDownload