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Growing research and policy interest focuses on the misallocation of output and factors of production in developing economies. This paper considers the possible misallocation of financial loans. Using plant-level data on the organized and unorganized sectors, the paper describes the temporal, geographic, and industry distributions of financial loans. The focus of the analysis is the hypothesis that land misallocation might be an important determinant of financial misallocation (for example, because of the role of land as collateral against loans). Using district-industry variations, the analysis finds evidence to support this hypothesis, although it does not find a total reduction in the intensity of financial loans or those being given to new entrants. The analysis also considers differences by gender of business owners and workers in firms. Although potential early gaps for businesses with substantial female employment have disappeared in the organized sector, a sizeable and persistent gap remains in the unorganized sector.

It is a stylized fact that financial sector liberalization would result into higher interest rates, which would attract savings desirable for increased investments through enhanced efficiency in financial resource allocation. This paper examines this posture in the Uganda’s case using the Granger and Engle framework and structural change analysis. The results indicate that, liberalization of the financial sector results into higher financial savings which operate through the rate of return on savings, financial deepening and foreign exchange rate channels. This provides some support for first part of the crux of McKinnon and Shaw financial liberalization thesis, confirming the potential for payoffs relating to ongoing financial deepening and a shift to an out-ward oriented growth strategies. Consistent with the predictions made in the Life cycle model, the results indicate that higher growth in income stimulates private savings which reinforces the fact that the ability of the country to mobilize financial savings.&nbsp

Summary We estimate capital flight from 10 Central and Eastern European countries for the period 1996–2009. Capital flight from the transition economies is mainly an economic phenomenon, driven by differences in interest rates and investors’ perceptions of economic conditions in their countries as well as by the ease with which they are able to obtain funds that can be transferred overseas through domestic loans and capital inflows. Domestic credit expansion is an important source of financing for capital flight. Paradoxically, financial liberalization has fueled rather than reduced capital flight by reducing its costs and increasing the funds that can be moved abroad.

We estimate capital flight from seven countries of the Commonwealth of Independent States for the period 1995–2005. In some countries capital flight is large and growing, but other countries, despite similar macroeconomic and political circumstances, have little capital flight. We develop a model of capital flight that incorporates costs of moving money to offshore locations and show that such costs are an important determinant of capital flight. Liberalizing the trade and financial sectors accelerates capital flight by making it easier to move capital abroad. In the short run, greater regulation rather than external sector liberalization appears to have more potential to combat capital flight.

The General Agreement on Trade in Services (known as the GATS) is an important new element in the international framework that affects the regulation of every WTO Member's financial sector. However, except for a limited number of country-specific case studies, no attempt has been made to compare WTO commitments to open the domestic banking sector to foreign banks with actual regulatory practice in a systematic and comprehensive manner on a cross-country basis. Nor has much attention been devoted to systematically and comprehensively assess the degree to which WTO Members discriminate against foreign bank. This paper draws upon a new and comprehensive dataset consisting of the commitments countries made at the WTO and the regulations actually imposed on foreign banks by those countries. The dataset covers 123 WTO Members for whom there was also information available on their current regulatory regime for banking (based on the responses to a World Bank survey as discussed in Barth, Caprio, and Levine (2006)). On the basis of that data, the authors develop indices measuring the degree of openness to foreign banking based upon both commitments made and actual regulatory practice, with a view to assessing the overall extent to which countries open their borders to foreign banks more than they are legally obliged to do based upon their WTO commitments. The dataset is also used to assess the overall extent to which countries discriminate against foreign banks by regulating them less favorably than domestic banks. Although our results are still quite preliminary, they do show substantial divergences between commitments and practices. Indices of market openness and discrimination reveal wide differences among the 123 countries in the sample. The paper also identifies various factors that help explain the level of commitments that WTO Members have made.