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Does Financial Depth Improve Aggregate Savings Performance? Further Cross‐Country Evidence
Author(s) -
Cook Christopher J.
Publication year - 2003
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00189
Subject(s) - proxy (statistics) , economics , financial intermediary , consistency (knowledge bases) , work (physics) , econometrics , aggregate data , outlier , estimation , aggregate (composite) , variety (cybernetics) , finance , computer science , statistics , mathematics , engineering , mechanical engineering , management , artificial intelligence , materials science , machine learning , composite material
The paper examines whether financial depth can encourage savings. The main issue concerns how best to measure financial depth. A variety of proxies have been used in the past, mostly in the form of financial intermediation ratios (FIRs). A second issue concerns specification. Misspecification in earlier work may have overstated the importance of financial depth. A final issue concerns the effect of outliers, which are dealt with using robust estimation techniques. Based on a broadly specified lifecycle regression model and data from 122 countries, it is concluded that, although financial depth has a positive influence on savings, its strength continues to be open to question. Only one FIR and a non‐FIR proxy (bank offices per person) are unambiguously significant. These results suggest that further work could be fruitful, especially if directed toward improving the accuracy and consistency of existing FIR data.