ISBN: 3540401539
TITLE: Development Finance
AUTHOR: Rao
TOC:

CHAPTER 1:
Markets, Institutions and Transaction Costs 1
1.1 Introduction 1
1.2 Contracts, Agency and Transaction Costs 2
Transaction Costs (TC) 2
Box 1.1: Main Concepts and Definitions 3
Transaction Costs and Financial Institutions 5
Economics of Contracts 6
Principal-Agent (PA) Theory
1.3 Asymmetric Information (AI)
Box 1.2: Economics of Information: Concepts and Definitions 9
Welfare Maximization 11
Proposition 1.1 11
Box 1.3: Mission Impossible: Social Welfare Maximization 12
1.4 Capital Markets and Credit Rationing 13
Credit Rationing 13
Box 1.4: Equilibrium Credit Rationing 15
Proposition 1.2 16
Proposition 1.3 16
1.5 Risk Management 17
Value-at-risk (VAR) 18
Capital Asset Pricing Model 19
Financial Crises 20
1.6 Domestic and International Capital Flows 21
Foreign Direct Investment (FDI) 21
Developing Countries and Credit Markets 22
1.7 Concluding Observations 23
Review Exercises 25
References 26
CHAPTER 2:
Finance, Economic Growth, and Development 29
2.1 Introduction 29
2.2 Capital Flows and Economic Growth 30
Financial Stability Forum 33
2.3 Financial Institutions and Economic Growth 34
How is Economic Growth Influenced? 34
Financial Intermediaries and Economic Growth 35
Empirical Analyses 37
Towards a Formal Model 38
2.4 Financial Development and Economic Growth 39
Box 2.1: The Role of Expectations 40
Empirical Studies 41
Methodological Issues 41
Endogenous Growth 42
2.5 Financial Development and Economic Development 44
Box 2.2: Law and External Finance 45
Macroeconomic Openness 46
2.5 Concluding Observations 47
Review Exercises 49
References 50
CHAPTER 3:
Microcredit and Inverted Banking 53
3.1 Introduction 53
3.2 Social Collateral and Inverted Banking 54
Gender and Credit 56
3.3 Credit Markets: Formal and Informal Systems 56
Credit Market Imperfections 57
Proposition 3.1 58
3.4 Rural Credit Markets 59
Rural Credit Environment 59
Role of Information Economics 60
3.5 The Design of Rural Credit Institutions 61
Institutional Credit and TC 62
Group Lending 63
The Design of Cooperative Institutions 64
Role of Joint Liability 64
A Heuristic Model 65
3.6 Model Case: Grameen Bank of Bangladesh 66
3.7 Concluding Observations 68
Review Exercises 70
References 71
CHAPTER 4:
Global Financial Architecture 73
4.1 Introduction 73
4.2 Capital Adequacy and Financial Soundness 74
Financial Soundness Indicators (FSI) 74
Credit Ratings and Financial Management 75
Definition of Credit Ratings 76
Capital Adequacy Guidelines 77
Box 4.1: New Basel Capital Accord 78
4.3 Financial Liberalization and Globalization 79
The Washington Consensus 79
Financial Liberalization and Growth 80
Banking Crises and Other Risks of Financial Liberalization 81
4.5 International Financial Institutions 82
External Finance and Data Improvements 82
Box 4.2: Data on External Financial Positions 83
Legitimacy of Sovereign Debts 84
Box 4.3: Are All External Debts Legitimate? 84
The IMF 85
Methods of Assessment 87
Recommendations on Reform 87
4.4. Financing for Development: The Monterrey Consensus 89
Limitations of the Consensus 90
4.6 Concluding Observations 91
Review Exercises 93
References 94
CHAPTER 5:
External Aid and Development 97
5.1 Introduction 97
5.2 Official Development Assistance 98
Trends in ODA 99
Rationale for ODA 99
5.3 External Aid and Economic Growth 101
Two-Gap/Financing Gap Model 101
Aid Fungibility 102
Aid Experiences 103
Performance-Based Aid and Conditionalities 104
5.4 The Effectiveness of Aid 106
The Role of International Factors 107
Toward Relevant Theories 108
Box 5.1: External Aid and Game Theory 110
5.5 Concluding Observations 111
Review Exercises 112
References 113
CHAPTER 6:
Sovereign Debt Management 117
6.1. Introduction 117
6.2 Debt Management - A Historical Perspective 118
Debt Restructuring Experience of 1980s 118
6.3 External Debt and Economic Growth 119
Debt Levels and Economic Growth 119
Empirical Study 121
6.4 Debt Contracts and Renegotiation 121
Long Term and Short Term Contracts 122
Analytical Aspects 123
Optimal Debt Contracts 124
Methodological ImprovemenL 125
Box 6.1: Improved Approaches and Analytical Methods 125
6.5 Debt Relief Policies 127
High Indebtedness 127
Recent Developments 128
Box 6.2: The HIPC Initiative 129
6.6 The Design of Incentives 130
Role of Sanctions 131
Incentives 133
6.7 Sovereign Debt Management 134
Sovereign Debt Restructuring 135
New Reforms 137
Box 6.3: Sovereign Debt Reorganization and Global Chapter 9 138
6.8 Concluding Observations 140
Review Exercises 142
References 143
CHAPTER 7:
Project Appraisal - Improved Methods 147
7.1 Introduction 147
7.2 Objectives and Commensurability 148
Box 7.1: Main Definitions 148
7.3 Standard Methods of Cost-Benefit Analysis 149
7.4 Changing Preferences and Discounting 150
Discount Factors and Discount Rates 153
Box 7.2: Hyperbolic Discount Functions 154
A Framework for Improved Methods 155
Transient Costs and Equilibrium Costs 155
Missing Markets, Uncertainty and SCBA 156
Box 7.3: Uncertainty and Discount Rates 156
7.5 Concluding Observations 157
Review Exercises 158
References 159
CHAPTER 8:
Finance and Sustainabie Development 161
8.1 Introduction 161
8.2 Sustainable Development 162
Classification of Environmental Dimensions 162
Categories of Capital 162
Sustainable Development 163
Box 8.1: Protecting the Environment for Future Generations 164
Millennium Development Goals (MDG) 165
Box 8.2: Millennium Development Goals 165
Financial Aspects 166
8.3 Environmental Taxes 167
Environmental Taxes and Double Dividend 169
The World Bank and IMF Role 171
Debt Relief 172
New Deal for Debt-For-Nature Swaps? 172
8.4 Finance and the Global Environment 174
Zedillo Commission Report 174
Box 8.3: Innovative Sources of Development Finance? 175
FDI, Environmental Standards and Global Finance 175
Box 8.4: Global Environmental Facility 176
8.5 Environment and Lender Liability 177
Export Credit Agencies 177
The World Bank 178
Extended Lender Liability (ELL) 179
8.6 Concluding Observations 179
Review Exercises 181
References 182
CHAPTER 9:
Perspectives 185
9.1 Broad Approaches 185
Maintaining Financial Stability 186
Infrastructural Improvements 188
9.2 Country Risk Analyses and Credit Ratings 189
Motives for Borrowing and Assessment of Risk 189
Sovereign Debt 190
Sovereign Risk 191
Credit Risk 191
Country Risk 191
Box 9.1: Solvency Assessment 192
Box 9.2: Country Risk Analysis and Managing Risk 193
Sovereign Credit Ratings and Limitations 194
9.3 Main Conclusions 195
Review Exercises 198
References 199
Select Website Addresses 201
Index 203
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