Law, finance, and growth

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Law, finance, and growth
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Questions

• How to measure countrys financial development?
• How is it related to legal system?
• How does it affect industrial growth?
• What are typical financial systems?
• How do they differ in vulnerability to crisis?

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Financial development stock market

• Size and liquidity of the domestic market
• Market equity cap to GDP
• instruments (actively) traded locally
• Stocks / bonds / derivatives
• IPOs
• Free float
• Trading volume / turnover rate
• Transaction costs / bid-ask spread

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Financial development stock market (2)

• Global integration
• Share of foreign currency denominated obligations
• IPOs / trading volume abroad
• Share of foreign investors in trading volume /
  ownership
• Correlation (degree of co-integration) between
  Russian and foreign indices

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Financial development stock market (3)

• Returns and risks
• Mean return / st.dev. / Sharpe coefficient
• Synchronicity of individual stock prices
• Fraction of variation explained by market factors
• Sensitivity to domestic / global risk factors
• Oil price / currency / inflation
• Duration / credit rating / YTM of bonds
• Default / term spread

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Financial development corporate sector

• Corporate governance
• /share companies with IAS reporting / open
  ownership structure / high (SP) rating
• Share of the largest owner / state
• /share of the independent directors
• /share transactions with the affiliated parties
• Dividend yield / payout ratio
• Control premium

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Financial development corporate sector (2)

• Financial policy
• Debt ratio (financial leverage)
• Share of bank credits in debt
• Share of foreign currency obligations in debt
• Share of investments financed via external
  sources of capital
• Duration of debt

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Financial development banking system

• Bank credits to GDP
• banks / large banks / foreign banks
• new / cancelled licenses
• Concentration
• Share of assets / deposits by top (5) banks
• Average branches
• Average credit / deposit rate / duration
• Share of credits / deposits in foreign currency

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Finance vs growth critique of cross-country
studies

• Endogeneity
• Cross-correlation
• Regional effects
• Measurement error
• Multicollinearity

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Finance vs growth causality

• Omitted variables
• Culture / propensity to save
• Anticipation
• Financial measures are forward-looking
• Solutions
• Using instruments
• From country to industry and firm level