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Developing Economies’ Long-Term Financing Shortfall

Although emerging markets have accounted for roughly half of global economic growth in recent years, advanced economies continue to dominate the supply of long-term funding. The mismatch between the time horizon of available funding and that of investors and entrepreneurs is a source of vulnerability that impedes growth.

WASHINGTON, DC – Since the global financial crisis, “banking” has practically become a swear word. But, while banks undoubtedly have the capacity to inflict serious damage on economies and livelihoods, a well-run financial system can offer significant benefits. A growing body of evidence, highlighted in the World Bank Group’s recent Global Financial Development Report,shows that financial institutions and markets have a profound influence on economic development, poverty alleviation, and the stability of economies worldwide, and that a pragmatic assessment of the state’s role in finance is warranted.

On the surface, the most unusual feature of the ongoing financial crisis is that developed economies have been affected much more strongly and directly than developing economies, many of which have learned from previous crises, put their fiscal houses in order, made progress on structural reforms, and improved supervision and regulation.

But this distinction misses the larger point: the quality of policy matters much more than the level of economic development. Some financial systems in developed economies – for example, in Australia, Canada, and Singapore – have shown remarkable resilience, while others have gotten into trouble.

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