Title Risks and Returns
Subtitle Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia
Author David Michael Gould, Martin Melecky
ISBN 9781464809675
List price USD 39.95
Price outside India Available on Request
Original price
Binding Paperback
No of pages 296
Book size 203 X 267 mm
Publishing year 2017
Original publisher The World Bank
Published in India by .
Exclusive distributors Viva Books Private Limited
Sales territory India, Sri Lanka, Bangladesh, Pakistan, Nepal, .
Status New Arrival
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Risks and Returns presents a broad and deep analysis of the challenges faced by the financial systems of Emerging Europe and Central Asia (ECA). Based on careful analysis, it provides important insights into not only the trade-offs but also the synergies of financial sector development and stability in fostering inclusive growth and job creation. A must-read for any stakeholder, policy maker, or analyst of finance in the region.”

—Thonten Beck Professor of Banking and Finance, Case Business School, London; Research Fellow, Centre for Economic Policy Research; Co-Managing Editor, Economic Policy: and Co-Editor, Review of Finance

“Because the financial system shapes economic opportunities, poverty, and economic growth, getting financial policies right is of first-order importance Risks and Returns provides exceptionally insightful and detailed analyses of the types of reforms that would foster more robust and equitable economic development in Emerging Europe and Central Asia.”

—Ross Levine, Willis H. Booth Chair in Banking and Finance, Haas School of Business, University of California at Berkeley

“What is the link between finance and economic growth? This is an old and difficult auestion. Risks and Returns asks an even more difficult, and important, question: How can finance dromote shared prosperity? As the lessons of this book are relevant for most developing regions. Risks and Returns is a crucial resource for all who are interested in understanding the links between finance and development—not just scholars and policy makers who focus on ECA countries.”

—Ugo Paniua, Pictet Chair in Finance and Development, The Graduate Institute, Geneva

“The development and transformation of a functional financial sector has been one of the most critical aspects of the post-Communist transition in the last quarter-century, and in many ways this transition is stiil ongoing. Risks and Returns is a landmark contribution to our understanding-of the unique pitfalls and trade-offs involved. With its oriainal empirical material and analysis, it is required reading for anyone concerned with the recent past, and future of financial development in’the ECA region.” .

—Nicolas Véron, Senior Fellow at Bruegel; Visiting Fellow at the Peterson Institute for International Economics. Washington, DC


During the 1990s, Emerging Europe and Central Asia (ECA) chose a model of rapid financial development emphasizing bank credit expansion often funded by foreign capital. Although boosting financial inclusion of firms and households, the model was accompanied by lower efficiency and increased financial vulnerability. After two waves of crises, in the late 1990s and after 2008, ECA’s banking systems again face major stress. The crises and stresses have eroded trust in banks and job creation in credit-dependent firms. ECA’s shallow and illiquid capital markets offer no additional support. Stagnating income growth, particularly of middle- to lower-income earners, has led to increasing dissatisfaction with low productivity growth and limited opportunities. This frustration provides the impetus for reshaping financial policies. A healthy and balanced financial sector could strengthen structural adjustment in ECA’s eastern. oil-dependent economies and innovation in its western countries.

Risks and Returns: Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia argues for reaching beyond increasing access to credit. ECA countries must build integrated financial systems, enabling prudent financial inclusion in a region significantly lagging in the use of saving products. Striking the right balance across all dimensions of financial development (stability, efficiency, inclusion, and overall depth) is crucial for achieving and sustaining inclusive growth. Redesigning financial, policy involves addressing trade-offs often overlooked in the past. Too much credit and imprudent financial inclusion have led to banking crises. Overly stringent regulation to foster financial stability has hindered inclusion and efficiency gains. Both shortfalls have had negative consequences for shared prosperity.

Risks and Returns discusses tools and approaches to help policy makers achieve balanced financial development.

Europe and Central Asia Studies

Europe and Central Asia Studies feature analytical reports on main challenges and opportunities faced by countries in the region, with the aim to inform a broad policy debate. Titles in this regional flagship series undergo extensive internal and external review prior to publication.


About the Authors and Contributors




Regional Classifications Used in This Report

Overview • ECA Financial Systems Remain Vulnerable to Financial Shocks and Are Not Sufficiently Developed to Support Inclusive Growth • Setting Financial Policy Priorities • ECA’s Gaps in Relation to the Financial Development Frontier • The Contribution of Financial Development to Growth in ECA and the World • The Trade-Offs between Financial Inclusion and Stability in ECA • Using Financial Sector Strategies to Formulate Holistic and Balanced Financial Policy • References

Chapter 1: Europe and Central Asia Financial Systems in Historical and Cross-Country Contexts • How Do ECA Financial Systems Differ from Those in Other Regions? • How Different Are Financial Systems within ECA? • Conclusion • Notes • References • Spotlight 1: Understanding the Role and Governance of State-Owned Banks

Chapter 2: Finance for Growth and Shared Prosperity • What Has Been the Growth Performance of Countries in ECA Excluding the Impact of Finance? • What Is the Relationship between Financial Development and Growth in ECA? • Which Dimensions of Financial Development Should ECA Countries Prioritize for Long-Term Growth and Shared Prosperity? • Conclusion • Notes • References • Spotlight 2: Tackling the High and Persistent Level of Nonperforming Loans in Europe and Central Asia

Chapter 3: Jobs and Firms’ External Financing Conditions • Jobs and the Bottom 40 in ECA • Can Improving Firms’ External Financing Conditions Increase Employment and Income among Households in the Bottom 40 in ECA? • What Impact Does Improving Firms’ External Financing Conditions Have on Labor Market Volatility? • How Does Labor Market Volatility as a Result of Fluctuations in Credit Affect the Bottom 40? • What Policies Can Improve Income Growth among the Bottom 40 and Reduce Volatility for the Top 60? • Notes • References • Spotlight 3: Achieving Equilibrium Credit Provision in Europe and Central Asia with the Help of Cross-Border Supervision • Spotlight 4: Weighing Different Strategies for Developing Capital Markets in Europe and Central Asia

Chapter 4: Household Saving Behavior in Europe and Central Asia • What Characterizes the Saving Behavior in ECA, and Which Policies Can Boost Savings? • What Drives Saving Behavior in Emerging ECA? • Conclusion • Notes • References • Spotlight 5: Developing Private Pension Schemes in Europe and Central Asia

Chapter 5: The Nexus of Financial Inclusion and Financial Stability: Identifying Trade-Offs and Synergies for Europe and Central Asia • How Do We Measure Financial Inclusion and Stability? • How Do We Assess the Relationship between Inclusion and Stability? • How Are Stability and Inclusion Related? • Conclusion • Notes • References • Spotlight 6: Setting Up the Framework for Macroprudential Policy in Europe and Central Asia • Spotlight 7: Promoting the Use of Insurance for Increased Risks from Climate Change

Chapter 6: Financial Sector Strategies and Financial Sector Outcomes: Do the Strategies Perform? • What Has Driven Financial Sector Strategies, and How Can They Be Evaluated? • How Do We Estimate the Relationship between Strategies and Financial Outcomes? • What Are the Estimation Results? • Summary and Policy Recommendations • Country Pointers to Focus Policy Efforts with the Help of Financial Sector Strategies • Notes • References • Spotlight 8: Learning from Crisis Simulation Exercises in Europe and Central Asia

Appendixes • A. Econometrics • B. Controlling for the Effect of Growth on Finance • C. Financial Development Data • D. Regression Analysis of the Impact of Credit on Firm-Level Outcomes • E. Data Source for the Analysis • F. Comparability of Global Findex and OeNB Euro Surveys • G. Detailed Tables of Results • H. Employed Measures of Financial Inclusion and Stability • I. Financial Inclusion and Stability Tables and Figures • J. Modeling the Dependence between Financial Inclusion and Stability • K. The Nexus between Financial Inclusion and Stability: Additional Results • L. The Nexus between Financial Inclusion and Stability: Multivariate Regression

About the Authors:

David Michael Gould is Lead Economist in the Europe and Central Asia (ECA) Region of the World Bank. David is the author of several books and peer-reviewed journal articles on international trade and finance, migration, and economic policy. Currently, he is leading ECA regional flagship studies on networks and connectivity and financial market development. During his 13 years at the World Bank, he has led teams to deliver country development strategies and analytical and lending operations in Europe, Latin America, and South Asia. Before coming to the World Bank, David served as the Director of Global Economic Analysis at the Institute of International Finance and as Senior Economist and Policy Adviser at the U.S. Federal Reserve. He has held visiting research positions at the Central Banks of Mexico and Chile. He holds a PhD in international economics from UCLA and is a Chartered Financial Analyst (CFA) charter holder.

Martin Melecky is Lead Economist in the Office of the Chief Economist for South Asia at the World Bank. Currently, he leads two regional flagships: Economic Corridors of South Asia and Finance for Shared Prosperity in Europe and Central Asia. Recently, he has led financial sector assessment programs, development policy operations, and investment and technical assistance projects in Kazakhstan, Maldives, Moldova, Montenegro, Sri Lanka, and Tajikistan. He is the lead author of the chapter in the 2014 World Development Report on the role of the financial system in risk management. His country experience with the World Bank also covers Albania, Armenia, Bulgaria, the Arab Republic of Egypt, the former Yugoslav Republic of Macedonia, Romania, the Russian Federation, and Turkey. Before coming to the World Bank, Martin worked as an Economist at the Dutch Central Bank, as a Consultant at the European Central Bank, and as a Consultant for the Czech National Bank. His research has focused on financial stability and financial inclusion, monetary policy and macroeconomic modeling, public debt management and fiscal policy, and currency substitution and exchange rate dynamics. He has coauthored two books and published more than 30 papers in professional journals. A Czech national, Martin received a PhD in economics from the University of New South Wales, Australia.

Target Audience:

A must-read for any stakeholder, policy maker, or analyst of finance in the region.

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